Aggregation and Labor Supply Elasticities. Issue 5 (11th September 2019)

• Record Type: Journal Article
• Authors: Kneip, Alois; Merz, Monika; Storjohann, Lidia
• Is Part Of: Journal of the European Economic Association. Volume 18:Issue 5(2020)
• Page Start: 2315
• Page End: 2358
• Publication Date: 2019-09-11
• Subjects: Economics -- Periodicals; Économie politique -- Périodiques; Science économique; Périodique électronique (Descripteur de forme); Ressource Internet (Descripteur de forme); 330
• DOI: 10.1093/jeea/jvz039
• Languages: English
• ISSNs: 1542-4766

Abstract

Abstract: We outline a formal procedure for deriving the aggregate wage-elasticity of labor supply for a large group of heterogeneous workers who operate under uncertainty. Heterogeneity relates to preferences, income, wealth, and the labor market status. If each worker faces a small, possibly nonuniform wage change, the implied aggregate wage-elasticity can be represented by a closed-form expression. This expression captures an extensive and an intensive margin. We empirically implement the procedure for a dynamic model of individual labor supply and a micro panel of men in Germany from 2000 to 2013. We find that the extensive margin is less time-varying than the intensive margin, and that its size varies with the measure of reservation wages. Self-reported reservation wages render a larger extensive margin than other proxies. The estimated aggregate Frisch wage-elasticity varies between 0.85 and 1.06, and the two margins matter equally strongly for the unbalanced sample.