Aggregation with a double non-convex labor supply decision: indivisible private- and public-sector hours

Aleksandar Vasilev


This paper explores the problem of non-convex labor supply decisions in an economy with both private
and public sector jobs. To this end, Hansen (1985) and Rogerson's (1988) indivisible-hours framework is
extended to an environment featuring a double discrete labor choice. The novelty of the study is that the
micro-founded representation obtained from explicit aggregation over homogeneous individuals features
dierent disutility of labor across the two sectors, which is in line with the observed dierence in average
wage rates (OECD 2011). This theory-based utility function could be then utilized to study labor supply
responses over the business cycle.


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