IMPLICIT CONTRACTS, LIFE CYCLE LABOR SUPPLY, AND INTERTEMPORAL SUBSTITUTION

The implicit contract model is a serious alternative to the spot market interpretation of the labor market. However, its usefulness has been limited because the wage is unobserved, and hence it has not been possible to estimate an intertemporal (Frisch) supply elasticity for the model using microdata. In this article, we show that one can estimate this elasticity from microdata within the context of the implicit contract model under relatively weak assumptions based on consumer theory. We implement our approach on two micro data sets and, for both, obtain a reasonably precise elasticity estimate of approximately 1.0.