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

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  • Olivier Bargain
  • Kristian Orsini
  • Andreas Peichl

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 smalland 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.

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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 525.

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Length: 48 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp525

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

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Cited by:
  1. Pronzato, Chiara Daniela, 2014. "Fighting Lone Mothers’ Poverty through In-Work Benefits Methodological Issues and Policy Suggestions," Department of Economics and Statistics Cognetti de Martiis. Working Papers, University of Turin 201420, University of Turin.
  2. Philipp Doerrenberg & Denvil Duncan, 2012. "Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply," Cologne Graduate School Working Paper Series, Cologne Graduate School in Management, Economics and Social Sciences 03-10, Cologne Graduate School in Management, Economics and Social Sciences.
  3. Zuzana Siebertova & Matus Senaj & Norbert Svarda & Jana Valachyova, 2013. "To Work or Not to Work? Estimates of Labour Supply Elasticities," Working and Discussion Papers, Research Department, National Bank of Slovakia WP 5/2013, Research Department, National Bank of Slovakia.
  4. Nico Pestel & Eric Sommer, 2013. "Shifting Taxes from Labor to Consumption: Efficient, but Regressive?," SOEPpapers on Multidisciplinary Panel Data Research 624, DIW Berlin, The German Socio-Economic Panel (SOEP).
  5. Jeanne, O., 2012. "Fiscal challenges to monetary dominance in the euro area: a theoretical perspective," Financial Stability Review, Banque de France, Banque de France, issue 16, pages 143-150, April.
  6. Löffler, Max & Peichl, Andreas & Siegloch, Sebastian, 2013. "Validating Structural Labor Supply Models," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79819, Verein für Socialpolitik / German Economic Association.
  7. Manuel Kallweit & Anabell Kohlmeier, 2014. "Zusatzbeitraege in der Gesetzlichen Krankenversicherung," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 234(4), pages 490-517, July.
  8. Alessio J. G. Brown & Christian Merkl & Dennis Snower, 2014. "The Minimum Wage from a Two-Sided Perspective," Kiel Working Papers 1906, Kiel Institute for the World Economy.
  9. Olivier Bargain & Mathias Dolls & Dirk Neumann & Andreas Peichl & Sebastian Siegloch, 2013. "Comparing Inequality Aversion across Countries When Labor Supply Responses Differ," AMSE Working Papers 1323, Aix-Marseille School of Economics, Marseille, France.
  10. Jan Kabatek & Arthur Van Soest & Elena Stancanelli, 2014. "Income taxation, labour supply and housework: a discrete choice model for French couples," PSE - Labex "OSE-Ouvrir la Science Economique", HAL hal-00966801, HAL.
  11. repec:hal:cesptp:hal-00966801 is not listed on IDEAS

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