INTERTEMPORAL SUBSTITUTION AND CONSTRAINTS ON LABOR SUPPLY - EVIDENCE FROM PANEL DATA

This paper tests an intertemporal labor supply model for workers who say they face quantity constraints on their hours and for workers who say they do not. The data reject the model for the first group but not for the second. I conclude from this evidence that employment fluctuations result mainly from changes in the severity of constraints—that is, changes in involuntary unemployment—rather than intertemporal substitution. It also appears that liquidity constraints influence labor supply. Finally, the paper proposes a new approach to identifying intertemporal labor supply equations. Copyright © 1990, Wiley Blackwell. All rights reserved