FROM INDIVIDUAL TO AGGREGATE LABOR SUPPLY: A QUANTITATIVE ANALYSIS BASED ON A HETEROGENEOUS AGENT MACROECONOMY∗

At the aggregate level, the labor-supply elasticity depends on the reservationwage distribution.We present a model economy where workforce heterogeneity stems from idiosyncratic productivity shocks. The model economy exhibits the cross-sectional earnings and wealth distributions that are comparable to those in the micro data. We find that the aggregate labor-supply elasticity of such an economy is around 1, greater than a typical micro estimate.