Maliar, L. and S. Maliar
Journal of Macroeconomics – 22, 85-108
Abstract: There is a substantial amount of microeconomic evidence documenting differential responses of labor supply across productivity groups. In particular, more productive individuals: (i) enjoy a higher employment rate, (ii) have a lower volatility of employment and (iii) spend less time working at home. This paper constructs a real business cycle model with permanent heterogeneity in individual productivity. We calibrate the model with five productivity groups to match key aggregate features of the U.S. economy. We find that the model delivers most of the properties of the data.