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Returns to Experience and the Elasticity of Labor Supply

Author

Listed:
  • Scott French

    (School of Economics, UNSW Business School, UNSW)

  • Tess Stafford

    (School of Economics, UNSW Business School, UNSW)

Abstract

When wages increase with work experience, estimation of standard labor supply models that assume exogenous wage formation suffers from omitted variable bias and produces downward-biased estimates of the intertemporal elasticity of substitution (IES). We test this theory in a novel way. Using a large data set of the daily labor supply decisions of Florida fishermen, we identify a sample of highly-experienced, near-retirement fishermen, for whom the returns to experience are negligible and the standard model is a close approximation. Using this sample, we estimate an IES of 2.7, more than twice estimates that ignore the role of learning-by-doing.

Suggested Citation

  • Scott French & Tess Stafford, 2017. "Returns to Experience and the Elasticity of Labor Supply," Discussion Papers 2017-15, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2017-15
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2017-15.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Keane, Michael P., 2022. "Recent research on labor supply: Implications for tax and transfer policy," Labour Economics, Elsevier, vol. 77(C).
    2. Roman Horvath & Ali Elminejad & Tomas Havranek, 2020. "Publication and Identification Biases in Measuring the Intertemporal Substitution of Labor Supply," Working Papers IES 2020/32, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2020.
    3. Asad Islam & Sakiba Tasneem & Liang Choon Wang, 2023. "Fishermen’s competitiveness and labour market performance: Evidence from shrimpers in Bangladesh," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(3), pages 346-363, July.
    4. Ali Elminejad & Tomas Havranek & Roman Horvath & Zuzana Irsova, 2023. "Intertemporal Substitution in Labor Supply: A Meta-Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 1095-1113, December.
    5. Tess M. Stafford, 2018. "Do workers work more when earnings are high?," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-11, November.

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    More about this item

    Keywords

    intertemporal elasticity of substitution; human capital; learning by doing; Frisch; extensive margin; endogenous;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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