TY - JOUR AU - Chetty,Raj AU - Guren,Adam AU - Manoli,Dayanand S. AU - Weber,Andrea TI - Does Indivisible Labor Explain the Difference Between Micro and Macro Elasticities? A Meta-Analysis of Extensive Margin Elasticities JF - National Bureau of Economic Research Working Paper Series VL - No. 16729 PY - 2011 Y2 - January 2011 UR - http://www.nber.org/papers/w16729 L1 - http://www.nber.org/papers/w16729.pdf N1 - Author contact info: Raj Chetty Department of Economics Harvard University 1805 Cambridge St. Cambridge, MA 02138 Tel: 617-744-9492 E-Mail: chetty@fas.harvard.edu Adam Guren Department of Economics Harvard University 1805 Cambridge St. Cambridge, MA 02138 E-Mail: guren@fas.harvard.edu Dayanand S. Manoli Department of Economics University of Texas at Austin 2225 Speedway Stop C3100 Bernard and Audre Rapoport Building Room 1.116 Austin, TX 78712 Tel: 510-684-8978 E-Mail: dsmanoli@austin.utexas.edu Andrea Weber University of Mannheim Economics Department L7, 3-4 68131 Mannheim Germany Tel: +49 621 1811928 E-Mail: a.weber@uni-mannheim.de AB - Macroeconomic calibrations imply much larger labor supply elasticities than microeconometric studies. One prominent explanation for this divergence is that indivisible labor generates extensive margin responses that are not captured in micro studies of hours choices. We evaluate whether existing calibrations of macro models are consistent with micro evidence on extensive margin responses using two approaches. First, we use a standard calibrated macro model to simulate the impacts of tax policy changes on labor supply. Second, we present a meta-analysis of quasi-experimental estimates of extensive margin elasticities. We find that micro estimates are consistent with macro evidence on the steady-state (Hicksian) elasticities relevant for cross-country comparisons. However, micro estimates of extensive-margin elasticities are an order of magnitude smaller than the values needed to explain business cycle fluctuations in aggregate hours. Hence, indivisible labor supply does not explain the large gap between micro and macro estimates of intertemporal substitution (Frisch) elasticities. Our synthesis of the micro evidence points to Hicksian elasticities of 0.3 on the intensive and 0.25 on the extensive margin and Frisch elasticities of 0.5 on the intensive and 0.25 on the extensive margin. ER -