Working Paper: CEPR ID: DP6560
Authors: Lars Ljungqvist; Thomas J. Sargent
Abstract: An incomplete markets life-cycle model with indivisible labour makes career lengths and human capital accumulation respond to labour tax rates and government supplied non-employment benefits. We compare aggregate and individual outcomes in this individualistic incomplete markets model with those in a comparable collectivist representative family with employment lotteries and complete insurance markets. The incomplete and complete market structures assign leisure to different types of individuals who are distinguished by their human capital and age. These microeconomic differences distinguish the two models in terms of how macroeconomic aggregates respond to some types of government supplied non-employment benefits, but remarkably, not to labor tax changes.
Keywords: benefits; career; complete markets; employment lotteries; human capital; incomplete markets; indivisible labour; labour supply elasticity; retirement; taxes
JEL Codes: E24; E62; J21; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor tax rates (J89) | career lengths (Z22) |
| government-provided nonemployment benefits (H53) | career lengths (Z22) |
| labor tax rates (J89) | human capital accumulation (J24) |
| government-provided nonemployment benefits (H53) | human capital accumulation (J24) |
| career lengths (Z22) | macroeconomic aggregates (E10) |
| human capital accumulation (J24) | macroeconomic aggregates (E10) |