A Shred of Credible Evidence on the Long Run Elasticity of Labor Supply
AbstractVirtually all public policies regarding taxation and the redistribution of income rely on explicit or implicit assumptions about the long run effect of wages rates on labor supply. The available estimates of the wage elasticity of male labor supply in the literature have varied between -0.2 and 0.2, implying that permanent wage increases have relatively small, poorly determined effects on labor supplied. The variation in existing estimates calls for a simple, natural experiment in which men can change their hours of work, and in which wages have been exogenously and permanently changed. We introduce a panel data set of taxi drivers who choose their own hours, and who experienced two exogenous permanent fare increases instituted by the New York City Taxi and Limousine Commission, and we use these data to fit a simple structural labor supply function. Our estimates suggest that the elasticity of labor supply is about -0.2, implying that income effects dominate substitution effects in the long run labor supply of males.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15746.
Date of creation: Feb 2010
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Other versions of this item:
- Orley Ashenfelter & Kirk Doran & Bruce Schaller, 2010. "A Shred of Credible Evidence on the Long-run Elasticity of Labour Supply," Economica, London School of Economics and Political Science, vol. 77(308), pages 637-650, October.
- Orley Ashenfelter & Kirk B. Doran & Bruce Schaller, 2010. "A Shred of Credible Evidence on the Long Run Elasticity of Labor Supply," Working Papers 1203, Princeton University, Department of Economics, Center for Economic Policy Studies..
- Ashenfelter, Orley & Doran, Kirk & Schaller, Bruce, 2010. "A Shred of Credible Evidence on the Long Run Elasticity of Labor Supply," IZA Discussion Papers 4810, Institute for the Study of Labor (IZA).
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-06 (All new papers)
- NEP-LAB-2010-03-06 (Labour Economics)
- NEP-LTV-2010-03-06 (Unemployment, Inequality & Poverty)
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