Comparing Labor Supply Elasticities in Europe and the US: New Results

85 Pages Posted: 8 Jan 2013

See all articles by Olivier Bargain

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Kristian Orsini

KU Leuven

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - School of Economics (VWL); IZA Institute of Labor Economics; University of Essex - Institute for Social and Economic Research (ISER)

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Date Written: December 2012

Abstract

We suggest the first large-scale international comparison of labor supply elasticities for 17 European countries and the US, separately by gender and marital status. Measurement differences are netted out by using a harmonized empirical approach and comparable data sources. We find that own-wage elasticities are relatively small and much more uniform across countries than previously thought. Differences exist nonetheless and are found not to arise from different tax-benefit systems or demographic compositions across countries. Thus, we cannot reject that countries have genuinely different preferences. Three other results, important for welfare analysis, are consistent over all countries: the extensive (participation) margin dominates the intensive (hours) margin; for singles, this leads to larger labor supply responses in low-income groups; income elasticities are extremely small everywhere. Finally, the results for cross-wage elasticities in couples are opposed between regions, consistent with complementarity in spouses’ leisure in the US versus substitution in spouses’ household production in Europe.

Keywords: household labor supply, elasticity, taxation, Europe, US

JEL Classification: C25, C52, H31, J22

Suggested Citation

Bargain, Olivier and Orsini, Kristian and Peichl, Andreas, Comparing Labor Supply Elasticities in Europe and the US: New Results (December 2012). SOEPpaper No. 525, Available at SSRN: https://ssrn.com/abstract=2197817 or http://dx.doi.org/10.2139/ssrn.2197817

Olivier Bargain (Contact Author)

IZA Institute of Labor Economics ( email )

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Germany

University College Dublin (UCD) ( email )

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Ireland
+353 1 716 8357 (Phone)
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HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm

Kristian Orsini

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim - School of Economics (VWL) ( email )

Mannheim 68131
Germany

IZA Institute of Labor Economics ( email )

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

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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