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Wages, Taxes, and Labor Supply Elasticities: The Role of Social Preferences

Author

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  • Janjala Chirakijja
  • Pinchuan Ong

Abstract

Economists typically treat labor supply responses to wages and taxes as equivalent. We show that social preferences towards tax-funded government expenditures induce differences between the wage and net-of-tax rate elasticities of labor supply in canonical models. We use a large-scale vignette experiment to show that wage elasticities of labor supply are meaningfully larger than their net-of-tax rate counterparts, consistent with social preferences affecting labor supply. We show relevance for real labor market decisions by leveraging an existing elasticity of taxable income meta-analysis. Hence, models calibrated using net-of-tax rate elasticities when wage elasticities are more suitable understate individuals’ labor supply responses.

Suggested Citation

  • Janjala Chirakijja & Pinchuan Ong, 2026. "Wages, Taxes, and Labor Supply Elasticities: The Role of Social Preferences," PIER Discussion Papers 259, Puey Ungphakorn Institute for Economic Research.
    • Handle: RePEc:pui:dpaper:259
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    Keywords

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    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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