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Labor Supply and Optimization Frictions: Evidence from the Danish student labor market

Jakob Søgaard ()

No 2014-02, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: In this paper I investigate the nature of optimization frictions by studying the labor market of Danish students. This particular labor market is an interesting case study as it features a range of special institutional settings that affect students’ incentive to earn income and comparing outcomes across these setting effectively allow you to distinguish between different types of frictions. I find that the considered labor market is significantly affected by optimizations frictions, which masks the bunching at kink points normally associated with a positive labor supply elasticity under standard theory. More concretely I find the dominate optimization friction to be individuals’ inattention about their earnings during the year, while real adjustment cost and gradual learning appears to be of less importance.

Keywords: Optimization frictions; labor supply; bunching; inattention; student labor market (search for similar items in EconPapers)
JEL-codes: H21 H24 J22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2014-12-15
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