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

  • Bargain, Olivier

    ()

    (University of Aix-Marseille II)

  • Orsini, Kristian

    ()

    (K.U.Leuven)

  • Peichl, Andreas

    ()

    (ZEW Mannheim)

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. Measurement differences are 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 thought. Differences exist nonetheless and are found not to arise from different tax-benefit systems or demographic compositions across countries. Thus, we cannot reject that countries have genuinely different preferences. Three other results, important for welfare analysis, are consistent over all countries: the extensive (participation) margin dominates the intensive (hours) margin; for singles, this leads to larger labor supply responses in low-income groups; 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 spouses' household production in Europe.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6735.

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Length: 85 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6735
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