Accounting for Limited Commitment between Spouses when Estimating Labor-Supply

Christian Bredemeier, Jan Gravert and Falko Juessen
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Jan Gravert: University of Wuppertal

Review of Economic Dynamics, 2023, vol. 51, 547-578

Abstract: 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. (Copyright: Elsevier)

Keywords: Labor-supply elasticity; Limited commitment; Intra-household decision making; Couple households; Consumption (search for similar items in EconPapers)
JEL-codes: D13 D15 E21 E24 J12 J22 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.red.2023.06.002

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