Reservation Raises: The Aggregate Labour Supply Curve at the Extensive Margin

Preston Mui and Benjamin Schoefer

The Review of Economic Studies, 2025, vol. 92, issue 1, 442-475

Abstract: We measure desired labour supply at the extensive (employment) margin 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 labour 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.

Keywords: Labour supply; Employment; Aggregate labour supply curve; Employment; Business cycles; Reservation wages (search for similar items in EconPapers)
Date: 2025
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