In recent years macroeconomic explanations of cyclical movements in hours of work and consumption have made extensive use of the microeconomic model of life-cycle allocation. Starting with Lucas and Rapping's (1969) original work, the standard approach in macroanalysis makes use of aggregate data to estimate structural parameters of an individual's intertemporal allocation model. The results are then interpreted as those describing the “representative consumer.” At the same time that this approach draws inferences about individual behavior from aggregate data, other work asks whether microestimates of the life-cycle model can explain macroeconomic phenomena. For example, Hall (1980a) concludes that the microevidence on the intertemporal responsiveness of labor supply appears consistent with aggregate data, whereas Ashenfelter (1984) maintains it is not. In all of this research, a microeconomic model of life-cycle behavior is being interpreted in a macroeconomic setting, so it seems worthy of study to determine the conditions under which the interpretation is valid.

The purpose of this chapter is to explore the relationship between micro and aggregate specifications of the intertemporal allocation of labor supply. The empirical relevance of the life-cycle model is not addressed in this study; instead it is a maintained hypothesis that this model is an appropriate description of an individual's labor supply and consumption decisions. The objective is to construct empirical specifications for aggregate hours of work that have the life-cycle allocation model as their microeconomic foundation. It should be noted, however, that the general aggregation issues addressed here are relevant for other characterizations of an individual's decision making.