Microfoundations and Macro Implications of Indivisible Labor

Abstract

I show that the “indivisible labor” models of Diamond and Mirrlees (1978, 1986), Hansen (1985), Rogerson (1988), Christiano and Eichenbaum (1992) and many others are, when aggregated across persons with the same marginal utility of income, equivalent to the divisible labor model of Lucas and Rapping (1969); any data on aggregate hours and earnings generated by the divisible (indivisible) model can be generated by some parameterization of the indivisible (divisible) model. The same is true when “macro” data are obtained by aggregating over time and across people. This equivalence means that the indivisibility of labor per se does not have implications for macroeconomics. Nor does indivisibility have “aggregate” normative implications.

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