Accounting for Limited Commitment between Spouses when Estimating Labor-Supply Elasticities
Principal Investigator(s): View help for Principal Investigator(s) Christian Bredemeier, University of Wuppertal; Jan Gravert, University of Wuppertal; Falko Juessen, University of Wuppertal
Version: View help for Version V1
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Project Citation:
Bredemeier, Christian, Gravert, Jan, and Juessen, Falko. Accounting for Limited Commitment between Spouses when Estimating Labor-Supply Elasticities. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2023-05-17. https://doi.org/10.3886/E191681V1
Project Description
Summary:
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The Frisch elasticity of labor supply can be estimated by regressing hours worked on
the hourly wage rate, controlling for consumption of the individual worker. However,
most household panel surveys contain consumption information only at the household
level. We show that proxying individual consumption by household consumption biases
estimated Frisch elasticities downward as limited commitment in the household induces
individual consumption to behave differently from household consumption. We develop
an improved estimation approach that eliminates this bias by exploiting information on
the composition of household consumption to infer its distribution. Using PSID data, we
estimate Frisch elasticities of about 0.65 for men and 0.8 for women.
the hourly wage rate, controlling for consumption of the individual worker. However,
most household panel surveys contain consumption information only at the household
level. We show that proxying individual consumption by household consumption biases
estimated Frisch elasticities downward as limited commitment in the household induces
individual consumption to behave differently from household consumption. We develop
an improved estimation approach that eliminates this bias by exploiting information on
the composition of household consumption to infer its distribution. Using PSID data, we
estimate Frisch elasticities of about 0.65 for men and 0.8 for women.
Scope of Project
Subject Terms:
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Labor-supply elasticity;
limited commitment;
intra-household decision making;
couple households
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