Project Management

A Shred Of Credible Evidence On The Long Run Elasticity Of Labor Supply

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Executive Summary

Virtually all public policies regarding taxation and the redistribution of income rely on explicit or implicit assumptions about the long run effect of wages rates on labor supply. The available estimates of the wage elasticity of male labor supply in the literature have varied between -0.2 and 0.2, implying that permanent wage increases have relatively small, poorly determined effects on labor supplied. The variation in existing estimates calls for a simple, natural experiment in which men can change their hours of work, and in which wages have been exogenously and permanently changed.

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