Intertemporal Substitution in Labor Force Participation: Evidence from Policy Discontinuities

52 Pages Posted: 25 Oct 2010

See all articles by Dayanand Manoli

Dayanand Manoli

University of California, Los Angeles (UCLA) - Department of Economics

Andrea Weber

Vienna University of Economics and Business; Austrian Institute of Economic Research (WIFO); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Abstract

This paper presents new empirical evidence on intertemporal labor supply elasticities. We use administrative data on the census of private sector employees in Austria and variation from mandated discontinuous changes in retirement benefits from the Austrian pension system. We first present graphical evidence documenting delays in retirement in response to the policy discontinuities. Next, based on the empirical evidence, we develop a model of career length decisions. Using an estimator that exploits the graphical evidence, we estimate an intertemporal labor supply elasticity of 0.30; this relatively low estimate reflects that the disutility of labor supply rises relatively quickly with additional years of work.

Keywords: life-cycle labor supply, retirement decisions, intertemporal labor supply elasticity, policy discontinuities

JEL Classification: J22, J26, E24

Suggested Citation

Manoli, Dayanand and Weber, Andrea Michaela, Intertemporal Substitution in Labor Force Participation: Evidence from Policy Discontinuities. IZA Discussion Paper No. 5248. Available at SSRN: https://ssrn.com/abstract=1696851

Dayanand Manoli (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

Andrea Michaela Weber

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

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