Working Paper: NBER ID: w28770
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.
Keywords: labor supply; employment preferences; reservation wages; business cycles
JEL Codes: E24; E32; J22; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reservation raise distribution (D39) | aggregate labor supply curve (J20) |
| wages (J31) | employment preferences at the extensive margin (J29) |
| employment preferences at the extensive margin (J29) | fluctuations in employment (J63) |
| wage changes (J31) | employment (J68) |
| existing models (C59) | nonconstant labor supply curve (J20) |