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  • King-Plosser-Rebelo preferences satisfy balanced growth requirements, we have that income and substitution effects of labor cancel. Labor does not respond to a change in the wage level.
  • Greenwood-Hercowitz-Huffman preferences shut off the wealth channel: There is only a substitution effect left, hence labor co-moves with wages.
  • Jaimovich-Rebelo create the nested case with a wealth effect within the two aforementioned.

Is there any commonly used preference specification for which the wealth effect dominates the substitution effect, and hence labor supply reduces as a response to an increase in wages?

  • King-Plosser-Rebelo preferences satisfy balanced growth requirements, we have that income and substitution effects of labor cancel. Labor does not respond to a change in the wage level.
  • Greenwood-Hercowitz-Huffman preferences shut off the wealth channel: There is only a substitution effect left, hence labor co-moves with wages.
  • Jaimovich-Rebelo create the nested case with a wealth effect within the two aforementioned.

Is there any used preference specification for which the wealth effect dominates the substitution effect, and hence labor supply reduces as a response to an increase in wages?

  • King-Plosser-Rebelo preferences satisfy balanced growth requirements, we have that income and substitution effects of labor cancel. Labor does not respond to a change in the wage level.
  • Greenwood-Hercowitz-Huffman preferences shut off the wealth channel: There is only a substitution effect left, hence labor co-moves with wages.
  • Jaimovich-Rebelo create the nested case with a wealth effect within the two aforementioned.

Is there any commonly used preference specification for which the wealth effect dominates the substitution effect, and hence labor supply reduces as a response to an increase in wages?

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Preferences where wealth effect dominates

  • King-Plosser-Rebelo preferences satisfy balanced growth requirements, we have that income and substitution effects of labor cancel. Labor does not respond to a change in the wage level.
  • Greenwood-Hercowitz-Huffman preferences shut off the wealth channel: There is only a substitution effect left, hence labor co-moves with wages.
  • Jaimovich-Rebelo create the nested case with a wealth effect within the two aforementioned.

Is there any used preference specification for which the wealth effect dominates the substitution effect, and hence labor supply reduces as a response to an increase in wages?