Working Paper: CEPR ID: DP9718
Authors: Alois Kneip; Monika Merz; Lidia Storjohann
Abstract: This paper develops a statistical aggregation procedure for the Frisch elasticity of labor supply. It allows for worker heterogeneity and is applicable to an individual labor supply function with non-employment as a possible outcome. Subjecting all offered or paid wages to an unanticipated temporary change we analytically derive the aggregate elasticity and its main components. We quantify each component using individual-specific data from the German SOEP for males at working-age. We measure the hours' adjustment along the intensive and the extensive margin with the help of observed wages and reservation wages, respectively. The estimated aggegate Frisch elasticity varies over time.
Keywords: aggregation; extensive and intensive margin of adjustment; labor supply; reservation wage distribution; time-varying Frisch elasticities
JEL Codes: C51; E10; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unanticipated temporary increase in wages (J39) | increase in total hours worked (J22) |
| unanticipated temporary increase in wages (J39) | intensive margin adjustments (F16) |
| unanticipated temporary increase in wages (J39) | extensive margin adjustments (F12) |
| distribution of wages and reservation wages (J31) | adjustment of hours worked (J22) |
| aggregate Frisch elasticity (J19) | varies over time (J29) |
| average individual Frisch wage elasticity (J39) | contrasts with aggregate values (C43) |