1

EmpiricalEvidenceonLaborSupply(Chapter21) laborsupplyelasticitymeasuresresponsivenessofhoursofworktochangesinwagerate [%changeinhoursofwork(H)dividedby%changeinwagerate(w)]

>0: <0:

w,H(laborsupplycurveisupwardsloping,SE>IE) w,H(laborsupplycurveisdownwardsloping,IE>SE)

<1inabsolutevalueinelastic(Hisnotveryresponsivetochangeinw) >1inabsolutevalueelastic(Hisveryresponsivetochangeinw) PrimaryEarnersVersusSecondaryEarners(21.2) primaryearnersfamilymemberswhoarethemainsourceofincomeforahousehold theworkdecisionsofprimaryearnersarenotveryresponsivetochangesintheirwages(suchas thoseinducedbytaxes).Forevery10%reductioninaftertaxwages,primaryearnersworkabout1% fewerhours,foranelasticityoflaborsupplywithrespecttoaftertaxwagesof0.1. secondaryearnersworkersinthefamilyotherthantheprimaryearners Thesestudiesalsofindthatsecondaryearnersaremuchmoreresponsivetowages(andthustaxes), withelasticitiesoflaborsupplywithrespecttoaftertaxwagestypicallyestimatedtorangefrom0.5to 1forsecondaryearners,each1%riseinaftertaxwagesincreaseslaborsupplyby0.5%to1%.Most oftheresponseofsecondaryearnerscomesfromthedecisiontoworkatall(laborforceparticipation), withasmallerpartoftheresponsecomingfromthedecisionoverhowmanyhourstowork. Why? Traditionally,primaryearningmaleshadfewoutsidealternativestowork,giventheexpectationthat primaryearnersintheUnitedStateswouldworkfulltime.Secondaryearningfemales,however,hada naturaloutsideoption:providingchildcare. mentraditionallyhadthetypesofproductionsectorjobsforwhichhoursconstraintswere important,sothattherewaslittleleverageforadjustingtheirhourstoadesiredlevel.Women traditionallyworkedinservicesectorjobs,forwhichworkhoursweremoreflexible. Increasingly,thereisablurringofthelinesbetweenprimaryandsecondaryearners. 1970only31.9%ofmarriedwomenworked 2008almost60%ofmarriedwomenwereworking BlauandKahn(2005)findthatthemarriedfemalelaborsupplyelasticityfellbyhalffrom1980to 2000,fromanelasticityof0.8in1980toanelasticityof0.4by2000.Thus,assecondaryearners becomemoreestablishedinthelaborforce,theirwageelasticitiesarefallingtowardthoseofprimary earners,sothattheyarealsobecominglessresponsivetotaxationintheirworkdecisions. Whydoesachangeinthewagehaveabiggereffectonthelaborforceparticipationdecision thanthehoursofworkdecision?

Example#1 Jillhasnononlaborincomeandisnotworking.Now,thereisanincreaseinthewage.Whatisthe effectonherlaborsupply?

Example#2 Jillhasnononlaborincomeandisworking.Now,thereisanincreaseinthewage.Whatistheeffect onherlaborsupply?