Labour Supply Elasticity
Which factors could have changed advantages in home production between partners over the last century?
Fewer children
technological advances -> washing machine
Education expansion
Changing norms
How is labour supply elasticity estimated empirically?
By cross-sectional linnear regression.
We regress hours worked on wage, non-labour income and other factors, the coefficient for the wage rate gives us the elasticity.
Which are the empirical challenges for empirically estimating LS elasticity?
Measurement error: changes in the definition of hours of work, recall bias, wage rate estimation (inconsistent estimates and spurious correlations) and use of average wage rate when actually it is necessary to use marginal wage rate
Omitted variable vias: taste for work or ability
Selection: people participating in the LF are a non random sample
What is the effect of an inconditional cash transfer on LS?
It increases non-labour income, which increases reservation wage and thus reduces LS at the extensive margin. Hours of work decrease due to income effect.
What is the effect of a phase out cash transfer on LS?
It decreases LS more than an unconditional one because it also increases the opportunity cost of leisure, making a substitution effect.
What is the effect of an earned income tax credit on LS?
It is uncertain and depends on which place of the income distribution the individual is:
Bottom: it increases LS because allthough there is no possitive income effect in the extensive margin there is a positive substitution effect (increase in the ooportunity cost of leisure)
Middle: stay the same
Upper: uncertain, there is income effect due to the phase out but also substitution effect lowers opportunity cost of labour
Which samples do we use to estimate LS elasticity at the intensive and extensive margin? Which estimates are obtained?
Intensive -> working age men -> -0,1 - 0
Extensive -> working age women -> 0,2 - 1