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Returns to Experience and the Elasticity of Labor Supply

Scott French () and Tess Stafford
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Scott French: School of Economics, UNSW Business School, UNSW

No 2017-15, Discussion Papers from School of Economics, The University of New South Wales

Abstract: When wages increase with work experience, estimation of standard labor supply models that assume exogenous wage formation suffers from omitted variable bias and produces downward-biased estimates of the intertemporal elasticity of substitution (IES). We test this theory in a novel way. Using a large data set of the daily labor supply decisions of Florida fishermen, we identify a sample of highly-experienced, near-retirement fishermen, for whom the returns to experience are negligible and the standard model is a close approximation. Using this sample, we estimate an IES of 2.7, more than twice estimates that ignore the role of learning-by-doing.

Keywords: intertemporal elasticity of substitution; human capital; learning by doing; Frisch; extensive margin; endogenous (search for similar items in EconPapers)
JEL-codes: D91 E24 J22 J24 J31 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-05
New Economics Papers: this item is included in nep-mac
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