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Reservation Raises: The Aggregate Labor Supply Curve at the Extensive Margin

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  • Schoefer, Benjamin
  • Mui, Preston

Abstract

We measure extensive-margin labor supply (employment) preferences in two representative surveys of the U.S. and German populations. We elicit reservation raises: the percent wage change that renders a given individual indifferent between employment and nonemployment. It is equal to her reservation wage divided by her actual, or potential, wage. The reservation raise distribution is the nonparametric aggregate labor supply curve. Locally, the curve exhibits large short-run elasticities above 3, consistent with business cycle evidence. For larger upward shifts, arc elasticities shrink towards 0.5, consistent with quasi-experimental evidence from tax holidays. Existing models fail to match this nonconstant, asymmetric curve.

Suggested Citation

  • Schoefer, Benjamin & Mui, Preston, 2019. "Reservation Raises: The Aggregate Labor Supply Curve at the Extensive Margin," CEPR Discussion Papers 14209, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14209
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    Cited by:

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    2. Simon Jäger & Christopher Roth & Nina Roussille & Benjamin Schoefer, 2021. "Worker Beliefs About Outside Options," NBER Working Papers 29623, National Bureau of Economic Research, Inc.
    3. Simon Jäger & Benjamin Schoefer & Josef Zweimüller, 2023. "Marginal Jobs and Job Surplus: A Test of the Efficiency of Separations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(3), pages 1265-1303.
    4. Martin Hackmann & Joerg Heining & Roman Klimke & Maria Polyakova & Holger Seibert, 2021. "General Equilibrium Effects of Insurance Expansions: Evidence from Long-Term Care Labor Markets," Upjohn Working Papers 21-357, W.E. Upjohn Institute for Employment Research.
    5. Eunseong Ma, 2024. "The 40-Hour Work Week," Working papers 2024rwp-225, Yonsei University, Yonsei Economics Research Institute.
    6. Amy Finkelstein & Casey McQuillan & Owen Zidar & Eric Zwick, 2023. "The Health Wedge and Labor Market Inequality," Working Papers 2023-01, Princeton University. Economics Department..

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    More about this item

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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