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

  • Olivier Bargain

    (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), IZA - Institute for the Study of Labor)

  • Kristian Orsini

    (CES - Center for Economic Studies - Université Catholique de Louvain (UCL) - Belgique)

  • Andreas Peichl

    (IZA - Institute for the Study of Labor, University of Cologne - University of Cologne, CESifo - CESifo, ISER - University of Essex)

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, with measurement differences 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 considered. Nonetheless, such differences do exist, and are found not to arise from different tax-benefit systems, wage/hour level or demographic compositions across countries, suggesting genuine differences in work preferences across countries. Furthermore, three other important results for welfare analysis are consistent across countries: the extensive (participation) margin dominates the intensive (hours) margin; for singles, this leads to larger labor supply responses in low-income groups; and 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 their household production in Europe.

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Date of creation: Jul 2012
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Handle: RePEc:hal:wpaper:halshs-00805736
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