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

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  • Bargain, Olivier

    ()
    (University of Aix-Marseille II)

  • Orsini, Kristian

    ()
    (K.U.Leuven)

  • Peichl, Andreas

    ()
    (ZEW Mannheim)

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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6735.

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Length: 85 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6735

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

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Cited by:
  1. Jeanne, O., 2012. "Fiscal challenges to monetary dominance in the euro area: a theoretical perspective," Financial Stability Review, Banque de France, issue 16, pages 143-150, April.
  2. 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.
  3. Olivier Bargain & Mathias Dolls & Dirk Neumann & Andreas Peichl & Sebastian Siegloch, 2013. "Comparing Inequality Aversion across Countries When Labor Supply Responses Differ," Working Papers halshs-00805751, HAL.
  4. 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 79819, Verein für Socialpolitik / German Economic Association.
  5. Doerrenberg, Philipp & Duncan, Denvil, 2013. "Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80041, Verein für Socialpolitik / German Economic Association.
  6. 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).

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