Accounting for Limited Commitment between Spouses When Estimating Labor-Supply Elasticities

Arbeitspapier

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 0.7.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 14226

Classification and Topics

• Classification: Wirtschaft ; Household Production and Intrahousehold Allocation ; Intertemporal Household Choice; Life Cycle Models and Saving ; Marriage; Marital Dissolution; Family Structure; Domestic Abuse ; Time Allocation and Labor Supply ; Macroeconomics: Consumption; Saving; Wealth ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
• Subject: labor-supply elasticity ; limited commitment ; intra-household decision making ; couple households ; consumption

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bredemeier, Christian ; Gravert, Jan ; Juessen, Falko
• Event: Veröffentlichung
• (who): Institute of Labor Economics (IZA)
• (where): Bonn
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/236257
• Last update: 10.03.2025, 11:45 AM CET