Steady-State Labor Supply Elasticities: A Survey

33 Pages Posted: 21 Oct 2013

See all articles by Olivier Bargain

Olivier Bargain

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

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: October 18, 2013

Abstract

Previous reviews of static labor supply estimations concentrate mainly on the evidence from the 1980s and 1990s, Anglo-Saxon countries and early generations of labor supply modeling. This paper provides a fresh characterization of steady-state labor supply elasticities for Western Europe and the US. We also investigate the relative contribution of different methodological choices in explaining the large variation in elasticity size observed across studies. While some recent studies show that genuine preference heterogeneity across countries explains only a modest share of this variation (Bargain et al., 2013), we focus here on time changes and estimation methods as key contributors of the differences across studies. Both factors can explain larger elasticities in older studies (i.e. an increase in female labor market attachment over time and a switch from the Hausman estimation approach to discrete-choice models with tax-bene…t simulations). Meta-analysis evidence suggests that smaller elasticities in the recent period may be due to the time factor, i.e. a likely change in work preferences, both in the US and in Europe.

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

JEL Classification: C25, C52, H31, J22

Suggested Citation

Bargain, Olivier and Peichl, Andreas, Steady-State Labor Supply Elasticities: A Survey (October 18, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-084, Available at SSRN: https://ssrn.com/abstract=2343167 or http://dx.doi.org/10.2139/ssrn.2343167

Olivier Bargain

IZA Institute of Labor Economics ( email )

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University College Dublin (UCD) ( email )

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Andreas Peichl (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
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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)

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Colchester CO4 3SQ
United Kingdom

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