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Social Interaction in Labor Supply

Journal of the European Economic Association, Vol. 4, No. 6, December 2006

Posted: 16 Apr 2011  

Andrew Grodner

East Carolina University - Department of Economics

Thomas J. Kniesner

Syracuse University - Department of Economics; IZA Institute of Labor Economics

Date Written: October 1, 2005

Abstract

Our research examines the effect of interdependence on estimation and interpretation of earnings/labor supply equations. We consider the cases of (1) a positive spillover from others’ labor supplied and (2) a need for conformity with others’ labor supplied. Qualitative and quantitative comparative statics results with a Stone-Geary utility function demonstrate how spillover effects increase labor supply uniformly. Alternatively, conformity effects move labor supplied toward the mean of the reference group so that, in the limit, labor supply becomes perfectly inelastic at the reference group average. When there are un-modeled exogenous social interactions, conventional wage elasticities are still relatively well estimated although structural parameters may not be. Omitting endogenous social interactions may seriously misrepresent the labor supply effects of policy, however.

JEL Classification: J21, J22

Suggested Citation

Grodner, Andrew and Kniesner, Thomas J., Social Interaction in Labor Supply (October 1, 2005). Journal of the European Economic Association, Vol. 4, No. 6, December 2006. Available at SSRN: https://ssrn.com/abstract=1809886

Andrew Grodner

East Carolina University - Department of Economics ( email )

A423 Brewster Building
Greenville, NC 27858
United States
2523286742 (Phone)

Thomas J. Kniesner (Contact Author)

Syracuse University - Department of Economics ( email )

Syracuse, NY 13244-1020
United States
315-443-4589 (Phone)
315-443-1081 (Fax)

IZA Institute of Labor Economics

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

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