Reservation Raises

Reservation Raises
Author: Preston Mui
Publisher:
Total Pages:
Release: 2021
Genre:
ISBN:

We measure extensive-margin labor supply (employment) preferences in two representative surveys of the U.S. and German populations. We elicit reservation raises: the percent wage change that renders a given individual indifferent between employment and nonemployment. It is equal to her reservation wage divided by her actual, or potential, wage. The reservation raise distribution is the nonparametric aggregate labor supply curve. Locally, the curve exhibits large short-run elasticities above 3, consistent with business cycle evidence. For larger upward shifts, arc elasticities shrink towards 0.5, consistent with quasi-experimental evidence from tax holidays. Existing models fail to match this nonconstant, asymmetric curve.

The Aggregate Labor Supply Curve at the Extensive Margin

The Aggregate Labor Supply Curve at the Extensive Margin
Author: Preston Mui
Publisher:
Total Pages: 82
Release: 2019
Genre: Business cycles
ISBN:

We present a theoretically robust and empirically tractable representation of the aggregate labor supply curve at the extensive (employment) margin. First, we introduce the simple and basic concept of the reservation wedge: the hypothetical percent shift in an individual's potential earnings required to render her indifferent between employment and nonemployment. This concept generalizes reservation wages to the context of heterogeneity in earnings. For any given specific model, the reservation wedge serves as the sole scalar sufficient statistic for employment preferences. The CDF of the reservation wedges is the aggregate labor supply curve at the extensive margin. Second, we directly measure the wedge distribution in a representative household survey -- thereby nonparametrically mapping out the global labor supply curve of the U.S. population. For small deviations, the empirical curve exhibits large Frisch elasticities above 3, hence locally consistent with business cycle evidence. Rather than constant, the empirical arc elasticities shrink towards 0.5 for larger, upward shifts, thereby potentially also reconciling large local elasticities with the small arc elasticities implied by recent quasi-experimental evidence from tax holidays. Third, in a model meta-analysis, existing models would fail to match the global shape of this empirical curve. Fourth, we engineer one model to fit the empirical curve. A business cycle accounting exercise reveals that this fitted model (under the assumption of efficient rationing) would help reconcile cyclical employment fluctuations with labor supply.

Reservation Raises

Reservation Raises
Author: Preston Mui
Publisher:
Total Pages: 0
Release: 2021
Genre:
ISBN:

We measure extensive-margin labor supply (employment) preferences in two representative surveys of the U.S. and German populations. We elicit reservation raises: the percent wage change that renders a given individual indifferent between employment and nonemployment. It is equal to her reservation wage divided by her actual, or potential, wage. The reservation raise distribution is the nonparametric aggregate labor supply curve. Locally, the curve exhibits large short-run elasticities above 3, consistent with business cycle evidence. For larger upward shifts, arc elasticities shrink towards 0.5, consistent with quasi-experimental evidence from tax holidays. Existing models fail to match this nonconstant, asymmetric curve.

Essays on Aggregate Labor Supply

Essays on Aggregate Labor Supply
Author: Choonsung Park
Publisher:
Total Pages: 173
Release: 2015
Genre: Elasticity (Economics)
ISBN:

"The theme of this thesis is to measure the aggregate labor supply elasticity both at the intensive and extensive margins. The first two chapters concern measuring the labor supply elasticity at the extensive margin in a manner robust to model specifications. The third chapter obtains an intensive margin elasticity of labor supply in an environment in which workers' hours are complements in production. The first chapter exploits micro data on the joint distribution of consumption and wages to measure the Frisch labor supply elasticity at the extensive margin. I derive the following reservation property of the working decision: in a class of models in which the wage process is exogenous (EWP models), given consumption, there exists a unique wage level above which individuals work and below which they do not. In particular, this property is robust to arbitrary heterogeneity in borrowing constraints, discount factors, and wage processes--intuitively, consumption summarizes these factors that affect individual labor supply. Those workers with low wages relative to consumption are inferred to be more marginally attached to the labor market. The number of such workers is key to the magnitude of the Frisch elasticity at the extensive margin. Using the joint distribution of consumption and wages observed from the PSID waves 1999-2011, I find that (i) the aggregate Frisch elasticity of labor supply at the extensive margin is 0.4, and that (ii) across various demographic groups, the elasticity ranges from 0.2 to 0.6. These estimates are similar to those of quasi-experimental studies, suggesting that the number of marginal workers implied by the data is relatively small. In the second chapter, I allow the wage process to be endogenous by writing a class of models in which individuals accumulate human capital through learning-by-doing (LBD). I again measure the labor supply elasticity at the extensive margin, but consider how the human capital accumulation affects the measured elasticity compared to the simpler environment in Chapter 1. I show that in this environment the reservation wage can be defined conditional on consumption and assets choices. Intuitively, if a worker with the same wage and assets with another individual consumes more, then this suggests that the worker has a higher shadow value of LBD. Thus, consumption and assets choices jointly reveal the willingness to work, or the reservation wage. Using the data of consumption, wages, and assets from the PSID waves 1999-2011, I find that the aggregate labor supply elasticity at the extensive margin under the human capital models is 0.36, while that under the EWP models is 0.4. The small elasticity gap is because individuals with low consumption are likely to have low assets as well, implying that understanding the relationship between consumption and wages remains key to predicting the employment responses to wage shocks. Second, for narrowly defined demographic groups, the measured elasticities range from 0.2 to 1. As with the EWP models, relatively elastic groups are those who are younger, single, nonwhite, female, or without college degree. Considering the human capital accumulation does not particularly change the demographic characteristics of more marginal workers. The third chapter is based on a paper coauthored with Michele Battisti of Ifo Institute, and Ryan Michaels of the Department of Economics at the University of Rochester. We study the labor supply elasticity at the intensive margin in an environment in which workers are complements in production. The complementarity of workers implies an incentive to coordinate labor supply within the firm, which compresses working-time adjustments across workers in response to purely idiosyncratic variation in their return from working. This places no restrictions, however, on the response of firm-wide working time to firm-wide shocks. We estimate a model in which heterogeneous firms and workers bargain on working time and earnings using the method of simulated moments. The target moments are from matched firm-worker data from North-East Italy. We revisit earlier findings of a small intertemporal elasticity of labor supply exploiting the model's prediction that this elasticity will be larger for firm-wide fluctuations than evaluated at the individual level. First, the model uncovers the Frisch labor supply elasticity at the intensive margin 0.53. This value is near the top end of the range of estimates found in earlier studies. Second, to study how ignoring the coordination of labor supply affects the implied elasticity, we simulate the model such that only 1/9 of a firm's workforce receives a lump-sum transfer, but the remainder of the firm's workers do not (The fraction of the workforce corresponds to one cohort of workers that shares the same productivity and preference in the model). If we use the treatment effect in this case to infer the Frisch elasticity, the implied elasticity is less than half the estimate 0.53 we uncover."--Pages v-vii.

Individual and Aggregate Labor Supply in Heterogeneous Agent Economies with Intensive and Extensive Margins

Individual and Aggregate Labor Supply in Heterogeneous Agent Economies with Intensive and Extensive Margins
Author: Yongsung Chang
Publisher:
Total Pages: 35
Release: 2018
Genre: Business cycles
ISBN:

We study business cycle fluctuations in heterogeneous-agent general equilibrium models that feature both intensive and extensive margins of labor supply. A nonconvexity in the mapping between time devoted to work and labor services combined with idiosyncratic shocks generates operative extensive and intensive margins. We consider calibrated versions of this model that differ in the value of a key preference parameter for labor supply and the extent of heterogeneity. The model is able to capture the salient features of the empirical distribution of hours worked, including how individuals transit within this distribution. We then study how the various specifications influence labor supply responses to aggregate technology shocks. We ask to what extent our predictions for business cycle fluctuations are affected by abstracting from the intensive margin and instead assuming that adjustment occurs only along the extensive margin. We find that abstracting from intensive margin adjustment can have large effects on the volatility of aggregate hours even if fluctuations along the intensive margin are small.

Individual and aggregate labor supply with coordinated working times

Individual and aggregate labor supply with coordinated working times
Author: Richard Rogerson
Publisher:
Total Pages: 52
Release: 2010
Genre: Economics
ISBN:

I analyze two extensions to the standard model of life cycle labor supply that feature operative choices along both the intensive and extensive margin. The first assumes that individuals face different continuous wage-hours schedules. The second assumes that all work must be coordinated across individuals. These models look similar qualitatively but have very different implications for how aggregate labor supply responds to changes in taxes. In the first model, curvature in the utility from leisure function plays relatively little role in determining the overall change in hours worked, whereas in the second model it is of first order importance. The second model has important implications for what data is best able to provide evidence on the extent of curvature in the utility from leisure function.

Reconciling micro and macro labor supply elasticities : a structural perspective

Reconciling micro and macro labor supply elasticities : a structural perspective
Author: Michael P. Keane
Publisher:
Total Pages: 113
Release: 2011
Genre: Economics
ISBN:

The response of aggregate labor supply to various changes in the economic environment is central to many economic issues, especially the optimal design of tax policies. This paper surveys recent work that uses structural models and micro data to evaluate the size of this response. Whereas the earlier literature on this issue often concluded that aggregate labor supply elasticities were small, recent work has identified three key reasons that the aggregate elasticity may be quite large. First, earlier estimates abstracted from several key features, including human capital accumulation, leading to estimates that are dramatically negatively biased. 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 previous estimates for aggregate labor supply. Third, structural estimation of responses along the extensive (i.e., employment) margin are typically quite large.