Labor Supply Shifts and Economic Fluctuations

We investigate the role of labor-supply shifts in economic fluctuations. A new VAR identification scheme for labor supply shocks is proposed. Our method provides an alternative identification scheme, which does not rely on quot;zero-restrictionsquot;. According to our VAR analysis of post-war U.S. data, labor-supply shifts account for about half the variation in hours and one-fifth of variation in aggregate output. To assess the role of labor-supply shifts in a more structural framework, estimates from a dynamic stochastic general equilibrium (DSGE) model with stochastic variation in home production technology are compared to those from the VAR