Discussion paper

DP9718 Aggregation and Labor Supply Elasticities

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.


Merz, M (2013), ‘DP9718 Aggregation and Labor Supply Elasticities‘, CEPR Discussion Paper No. 9718. CEPR Press, Paris & London. https://cepr.org/publications/dp9718