Labor Economics & Elasticity of Labor Supply



Elasticity of Labor Supply

Introduction

For the discussion, I have chosen 0.25. The value denotes income Uncompensated wage elasticity of supply for men. Uncompensated wage elasticity is derived from the sum of compensated wage elasticity of supply and income elasticity of supply, both for men which are 0.4 and -0.15 in table 2.3 of the textbook respectively. The aelasticity aof alabor asupply awith aregards ato athe awage arate aplays aa asignificant arole ain amuch aeconomic apolicy aanalysis. aFor aexample, aits avalue adetermines ato aa alarge aextent athe aemployment aimpact aof areforms ain aredistributive atax-benefit asystems. aMoreover, ait ais acrucial afor athe amagnitude aof athe aefficiency acost aof aincome ataxation ain ageneral aequilibrium amodels. aIndeed, athe alarger ais athe aelasticity aof alabor asupply, athe alarger ais athe aemployment aeffect ain aresponse ato aa achange ain athe atax arate aand athe ahigher ais athe aexcess aburden aof ataxation.

Discussion

In alight aof aelasticity aof alabor asupply's aimportance, aa alarge anumber aof astudies ahave aestimated athe auncompensated aelasticity aof alabor asupply. aThe aresults aof athis aliterature aare areviewed ain ae.g. aBlundell aand aMaCurdy. aIt aappears athat athere aexists agreat avariation ain astudy aresults aand aan aequally alarge avariation ain aapproaches ato aestimate athe aelasticity. aAs aa aresult, athere ais alittle aagreement aamong aeconomists aon athe amagnitude aof athe aelasticity athat ashould abe aused ain aeconomic apolicy aanalyses. aTo aillustrate, aPrescott aexplains athe adifference ain ahours aper aworker abetween athe aUS aand aEurope aentirely aby athe adifferences ain aredistributive atax-benefit aschemes abetween athe atwo acontinents. aAlesina aet aal. ahowever, amaintain athat athis astory awould arequire aan aunrealistically alarge avalue aof athe auncompensated aelasticity aof alabour asupply. aSome astudies ahave atried ato aexplain athe awide adispersion ain aempirical aestimates aof athe auncompensated alabour asupply aelasticity ain athe aliterature. aA atypical afinding ais athat athe aelasticity afor awomen aexceeds athat afor amen. aAnother ais athat athe aelasticity aregarding athe adecision ato aparticipate a(the aextensive amargin) aexceeds athe aelasticity aof athe adecision aregarding ahours aworked a(the aintensive amargin). aThis alatter aresult amay aalso aexplain athe arelatively alarge aelasticity afor awomen, aas athe aparticipation arate aamong awomen ais atypically alower athan afor amen. aThe arising aparticipation arate aamong awomen ain arecent adecades amay ahave aled ato aa adecline ain athe aelasticity aof alabour asupply aof awomen, aas ais afor ainstance afound aby aBlau aand aKahn. aOther astudy acharacteristics athat acan aexplain athe avariation ain aresearch afindings ahave abeen aexplored aby aMroz. aHe aexamines athe aeffects aof aeconomic aand astatistical aassumptions aon aoutcomes afor amarried awomen. aHis afindings asuggest athat aspecification aand aexogeneity aassumptions ahave aa asubstantial aimpact aon athe aestimated aelasticities. aMaCurdy aet aal. aexplore athe aimpact aof aimplied amodel arestrictions aon aparameter aestimates ain athe acontext aof amaximum alikelihood aestimation aof astructural alabour asupply amodels. aTheir aoutcome ais asimilar ato aMroz'. aEricson aand aFlood aconclude athat adifferent aestimation astrategies amay alead ato aquite asome adispersion abetween aestimates, ain aparticular awhen ameasurement aerror ais apresent. aEckl a¨of aand aSackl´en ashow athat athe aconstruction aof avariables afrom ...