We develop a novel representative agent Walrasian framework that disentangles household
and rm decisions over the aggregate intensive and extensive margins of labor in the long run.
Our objective is to advance the macroeconomic understanding of the driving forces behind
trends in aggregate hours worked per population (the product of hours worked per worker
and the employment-population ratio). The model features: endogenous search effort that
households must expend in order to secure employment; and, motivated by a novel fact that
we document— a relationship between capital taxes and employment— rm-side employment
adjustment costs. A tax-inclusive version of the model can successfully explain the trend
behavior of hours worked per population in both Europe and the US. In contrast, standard
macroeconomic models yield stark counterfactual results for the US. Our framework can speak
to the long-run neutrality of productivity on employment implied by traditional models of
aggregate labor markets, and, more generally, is relevant for assessing the long run impact
of host of factors beyond taxes, including labor market reforms, changes in productivity, and
changes in demographics. As such, our model stresses the ongoing validity of representative
agent Walrasian frameworks for analyzing aggregate labor markets.