Working Paper: CEPR ID: DP14209
Authors: Preston Mui; Benjamin Schoefer
Abstract: We measure extensive-margin labor supply (employment) preferences in two representative surveys of the U.S. and German populations. We elicit reservation raises: the percent wage change that renders a given individual indifferent between employment and nonemployment. It is equal to her reservation wage divided by her actual, or potential, wage. The reservation raise distribution is the nonparametric aggregate labor supply curve. Locally, the curve exhibits large short-run elasticities above 3, consistent with business cycle evidence. For larger upward shifts, arc elasticities shrink towards 0.5, consistent with quasi-experimental evidence from tax holidays. Existing models fail to match this nonconstant, asymmetric curve.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reservation raises (Q26) | labor supply preferences (J29) |
| reservation raises (Q26) | local elasticity of labor supply (J29) |
| local elasticity of labor supply (J29) | labor supply response to small wage changes (J29) |
| reservation raises (Q26) | arc elasticities (H30) |
| arc elasticities (H30) | labor supply response to large wage increases (J39) |
| existing calibrated models (C51) | empirical shape of labor supply curve (J20) |