DP9718 Aggregation and Labor Supply Elasticities

Author(s): Alois Kneip, Monika Merz, Lidia Storjohann
Publication Date: November 2013
Keyword(s): Aggregation, Extensive and Intensive Margin of Adjustment, Labor Supply, Reservation Wage Distribution, Time-varying Frisch Elasticities
JEL(s): C51, E10, J22
Programme Areas: International Macroeconomics, Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9718

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.