EMPLOYMENT AND HOURS OVER THE BUSINESS-CYCLE

Approximately one quarter of the adjustment in total hours of employme nt over the business cycle represents adjustments in hours, while the remainder is explained by changes in employment. Real business cycle m odels characterize agents as either continuously adjusting their hours or making only labor force participation decisions about jobs with in divisible hours. In this paper we extend the representative agent fram ework to allow for decisions on both participation and hours. We calib rate and simulate a dynamic version of the model and show that it is b etter able to mimic some features of the aggregate data.