Studying the incentives and constraints in the non-market sector – that is, home production – enhances our understanding of economic behaviour in the market. In particular, it helps us to understand (a) small variations of labour supply over the life cycle, (b) the low correlation between employment and wages over the business cycle, and (c) large income differences across countries.
KeywordsCapital accumulation Cobb–Douglas functions Elasticity of substitution Home production Hours worked Income differences Intertemporal substitution elasticity IS–LM Labour supply Labour supply elasticities Leisure Michigan Time Use Survey National income accounts Neoclassical growth theory Non-market activity Real business cycles Stochastic growth model Technical progress Total factor productivity
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