Modelling the sectoral allocation of labour in open economy modelsWorking Papers from Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol Abstract: Indivisible labour is not the only type of nonconvexity affecting labour supply decisions. Another type of nonconvexity arises in economies with sectors whenever individuals can work in only one sector at a time. I introduce this restriction into an open economy model with a tradeable and a nontradeable sector, and I use lotteries to convexify the consumption possibilities set. This approach implies that the aggregate elasticity of labour supply becomes infinite. I compare the performance of the model with an analogous model in which the labour supply elasticity is finite. I find that the infinite labour supply elasticity helps explain the persistence of net exports. However, all the other consequences of the labour supply elasticity for the model-implied second-order moments depend on whether the pricing assumption is Producer Currency Pricing (PCP) or Local Currency Pricing (LCP). Keywords: Tradeable and nontradeable sectors; International business cycles; Labour supply elasticity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:uwe:wpaper:20131312 Access Statistics for this paper More papers in Working Papers from Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol Contact information at EDIRC. |
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