Working Paper: CEPR ID: DP7822
Authors: Lars Ljungqvist; Thomas J. Sargent
Abstract: The high labor supply elasticity in an indivisible-labor model with employment lotteries emerges also without lotteries when individuals must instead choose career lengths. The more elastic are earnings to accumulated working time, the longer is a worker's career. Negative (positive) unanticipated earnings shocks reduce (increase) the career length of a worker holding positive assets at the time of the shock, while the effects are the opposite for a worker with negative assets. Government provided social security can attenuate responses of career length to earnings profile slope and earnings shocks by inducing a worker to retire at an official retirement age.
Keywords: career length; earnings profile; earnings shocks; indivisible labor; labor supply elasticity; social security; taxes
JEL Codes: E24; J22; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| negative unanticipated earnings shocks (G14) | decrease career length (Z22) |
| positive unanticipated earnings shocks (G14) | increase career length (J62) |
| negative unanticipated earnings shocks (G14) | increase career length (for workers with negative assets) (J68) |
| positive unanticipated earnings shocks (G14) | decrease career length (for workers with negative assets) (J26) |
| government-provided social security (H55) | attenuate responses of career length to earnings shocks (J29) |