Reconciling Micro and Macro Labor Supply Elasticities: A Structural Perspective

By Michael P. Keane, Richard Rogerson. 2015

130 citations recorded by the source corpus.

The response of aggregate labor supply to various changes in the economic environment is central to many economic issues, including the optimal design of tax policies. Whereas the earlier literature often concluded that aggregate labor supply elasticities were small, we argue that recent work using structural models and micro data credibly supports large aggregate elasticities. We focus on three issues. First, earlier analyses abstracted from several key features, including human capital accumulation, that severely negatively biased estimates of a key preference parameter. Second, failure to understand that aggregate labor supply adjustments can occur along both the hours per worker and employment margins has led economists to misinterpret the implications of preference parameters for aggregate labor supply. Third, structural estimation of models that feature choice along the extensive margin using micro data typically finds large responses.

Subfields: Accounting, Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/0eb5238470ec07377d8fc86e84e77e27d8d0e37e

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Nezih Guner
2. Gustavo Ventura

In Economics and Econometrics

1. Martin Lopez-Daneri
2. Nezih Guner
3. Gustavo Ventura
4. Markus Poschke
5. B. Kaymak

In Gender Studies

1. Martin Lopez-Daneri
2. Gustavo Ventura
3. Nezih Guner
4. B. Kaymak
5. Markus Poschke

Citations in the corpus

• How Do Hours Worked Vary with Income? Cross-Country Evidence and Implications (2018, unknown): “We set the Frisch elasticity equal to f = 1 (Keane and Rogerson, 2015), and the capital share equal to q = 0.”
• Taxation and Innovation in the 20th Century (2018, unknown): “Keane and Rogerson (2015), reviewing the literature on micro and macro effects conclude that credible estimates of the macro-level compensated (Hicksian) elasticities are in the range of 0.5-1.0; in our case labor supply responses are only one of the several components driving innovation responses.”
• Heterogeneity and Government Revenues: Higher Taxes at the Top? (2014, background): “Chetty, Guren, Manoli and Weber (2011, 2013), Keane (2011) and Keane and Rogerson (2012) survey recent developments in this literature.”