$2,000 per capita is only about 4percentt of GDP, and a 4percentt reduction in aggregate labor demand is expected to reduce the aggregate quantity of labor by about one percent.4 But in fact the employment-population ratio was a full 7percentt less in 2011 than it was in 2007.
They concluded, "The aggregate values of labor supply and saving apparently responded very little".
The most thorough analysis, by economists Alan Auerbach and Joel Slemrod, found only a shifting of income due to tax reform, no growth effects: "The aggregate values of labor supply and saving apparently responded very little," they concluded.
4Here I assume a wage elasticity of aggregate labor demand of −3.3 (as it would be with an aggregate Cobb-Douglas production function with labor share 0.7) and a wage elasticity of aggregate labor supply of one.
At the second level, domestic supply is a Leontief function of intermediate inputs and value added and, at the lowest level of the nest, value added is a Cobb Douglas aggregate of primary factors, labor and capital.
In fact, if we want to model fluctuations of hours worked in the aggregate economy, the elasticity of labor supply should be estimated using aggregate data and not individual data.
With a larger (and thereby more reasonable) wage elasticity of aggregate labor supply, even more of the hours decline can be explained.
An advantage of the national approach is that it is less susceptible to the possibility of spatial arbitrage since attrition out of aggregate labor markets is less common than internal migration within them.
Mulligan (2012) finds that marginal tax rate changes of the amounts shown in Figure 4, with a 0.4 wage elasticity of aggregate labor supply that is less than most reported in the literature (Chetty, et al. 2011), explain at least half of the actual reduction in per capita work hours between the end of 2007 and the end of 2009.
The constant η is usually interpreted as the Frisch elasticity of aggregate labor supply with respect to after-tax real wages, and is taken to be one for the purposes of constructing Figure 5's employee wedge.
In this paper, I use both local wage comparisons and structural simulations of the aggregate Northern labor market to provide new evidence on the effects of the Great Migration on wages in the North, redoubling the evidence that it caused large declines in wages for blacks, with little effect for whites.
