The Supply of Hours Worked and Endogenous Growth Cycles

Ka-Kit Iong () and Andreas Irmen
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Ka-Kit Iong: Department of Economics and Management, Université du Luxembourg

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: (To consult this DP, please send an e-mail to dem@uni.lu) We show that declining hours of work per worker in conjunction with a growing work force may give rise to growth cycles. This is accomplished in an overlapping generations model where individuals are endowed with Boppart-Krusell preferences (Boppart and Krusell (2020)), i. e., the wage elasticity of their supply of hours worked is negative. On the supply side, economic growth is due to the expansion of consumption-good varieties through endogenous research. We show that a sufficiently negative equilibrium elasticity of the individual supply of hours worked to an expansion in the set of consumption-good varieties opens up the possibility of growth cycles where the economy fluctuates between two regimes, one with and the other without an active research sector. We identify period-2 and period-3 cycles, conclude with Li and Yorke (1975) that cycles of any periodicity exists, and generalize our findings to period-n cycles. We show that the possibility of cycles occurs under empirically plausible conditions. Throughout, we emphasize that the economics of cycles is linked to the intergenerational trade of shares and their pricing in the asset market.

Keywords: Endogenous Cycles; Technological Change; Endogenous Labor Supply; OLG-Model. (search for similar items in EconPapers)
JEL-codes: E32 J22 O33 O41 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-dge, nep-gro and nep-mac
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:20-10

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