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Returns to Experience and the Elasticity of Labor Supply

Author

Listed:
  • Tess Stafford

    (University of New South Wales)

  • Scott French

    (University of New South Wales)

Abstract

We use a unique dataset and novel empirical strategy to validate the predictions of labor supply models featuring returns to experience, quantify the bias in standard estimates of the intertemporal elasticity of substitution (IES) that assume exogenous wage formation, and obtain an unbiased estimate of the IES. Our approach uses the insight that the bias in standard estimates shrinks as returns to experience decline in importance relative to the wage. Our identification strategy does not rely on the structure of the human capital accumulation process but does require observing workers over multiple periods at the very end of their careers. Using data on the daily labor supply of Florida fishermen, we obtain an estimate of the IES that is large (2.5). Consistent with the theory, we find that a “naive†estimate is biased downward by nearly a factor of 2 and that the bias is larger for fishermen early in their career. (Copyright: Elsevier)

Suggested Citation

  • Tess Stafford & Scott French, 2026. "Returns to Experience and the Elasticity of Labor Supply," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 59, January.
    • Handle: RePEc:red:issued:24-183
    DOI: 10.1016/j.red.2026.101323
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    Cited by:

    1. is not listed on IDEAS
    2. Keane, Michael P., 2022. "Recent research on labor supply: Implications for tax and transfer policy," Labour Economics, Elsevier, vol. 77(C).
    3. 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.
    4. Islam, Asad & Tasneem, Sakiba & Wang, Liang Choon, 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(03), April.
    5. 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.
    6. 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.
    7. repec:osf:metaar:nshqx_v1 is not listed on IDEAS

    More about this item

    Keywords

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    JEL classification:

    • 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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