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Comparing Labor Supply Elasticities in Europe and the US: New Results

SOEPpapers 525, 48 S.

Olivier Bargain, Kristian Orsini, Andreas Peichl

2012

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Abstract

We suggest the first large-scale international comparison of labor supply elasticities for 17 European countries and the US, separately by gender and marital status. Measurement differences are netted out by using a harmonized empirical approach and comparable data sources. We find that own-wage elasticities are relatively smalland much more uniform across countries than previously thought. Differences exist nonetheless and are found not to arise from different tax-benefit systems or demographic compositions across countries. Thus, we cannot reject that countries have genuinely different preferences. Three other results, important for welfare analysis, are consistent over all countries: the extensive (participation) margin dominates the intensive (hours) margin; for singles, this leads to larger labor supply responses in low-income groups; income elasticities are extremely small everywhere. Finally, the results for cross-wage elasticities in couples are opposed between regions, consistent with complementarity in spouses' leisure in the US versus substitution in spouses' household production in Europe.



JEL-Classification: C25;C52;H31;J22
Keywords: household labor supply, elasticity, taxation, Europe, US
Frei zugängliche Version: (econstor)
http://hdl.handle.net/10419/68182

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