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2016 | 47 | 123-133

Article title

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


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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 different disutility of labor across the two sectors, which is in line with the observed difference in average wage rates (OECD 2011). Therefore, this theory-based utility function could be utilized to study labor supply responses over the business cycle.


  • Department of Economics, American University in Bulgaria


  • Cooley, Thomas F, and Edward C. Prescott, 1995. “Economic Growth and Business Cycles.” In: Frontiers of Business Cycle Research, ed. Thomas F. Cooley, 1‒38. Princeton: Princeton University Press.
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  • Hansen, Gary. 1985. “Indivisible Labor and the Business Cycle.” Journal of Monetary Economics 16: 309‒328.
  • Linnemann, Ludger. 2009. “Macroeconomic effects of shocks to public employment.” Journal of Macroeconomics 31: 252‒267.
  • OECD Statistical Databes. 2011. http://stats.oecd.org/(accessed: 17.10.2015).
  • Rogerson, Richard. 1988. “Indivisible Lotteries, Lotteries and Equilibrium.” Journal of Monetary Economics 21: 3‒16.

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