The labor market Intertemporal substitution of labor In RBC theory, workers are willing to reallocate labor over time in response to changes in the reward to working now versus later. .The intertemporal relative wage equals where W 1 is the wage in period 1(the present)and W 2 is the wage in period 2 (the future).(1+r)W 1/W2 The labor market • Intertemporal substitution of labor : In RBC theory, workers are willing to reallocate labor over time in response to changes in the reward to working now versus later. • The intertemporal relative wage equals where W 1 is the wage in period 1 (the present) and W 2 is the wage in period 2 (the future). (1+r)W 1 / W 2