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

Preston Mui and Benjamin Schoefer

No 28770, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E24 E32 J22 J64 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-lab and nep-mac
Note: EFG LS ME PE
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Working Paper: Reservation Raises: The Aggregate Labor Supply Curve at the Extensive Margin (2019)
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