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Steady-State Labor Supply Elasticities: An International Comparison

  • 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)

  • Andreas Peichl

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

This note provides an extensive survey of studies estimating steady-state labor supply elasticities for Western Europe and the US. Differences are driven by the heterogeneity in work preferences across countries and by methodological difference across studies (data, selection or model estimation and specification). While the former exists but is shown to be relatively small (Bargain et al., 2013), we focus here on modeling choices: Large elasticities are mainly found in studies estimated in the 1980s and relying on the Hausman approach. More recent estimates based on discrete-choice models with tax-benefit simulations show smaller and more similar estimates across countries. While we confirm that elasticities decline over time in the US, there is some evidence that both time effect and modeling choices affect estimates for Europe.

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Date of creation: Mar 2013
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Handle: RePEc:hal:wpaper:halshs-00805744
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