An Estimation of Labor Supply Elasticities for Mexico

Abstract

The empirical values of the response of labor supply to changes in wages, taxes, fertility, family structure and social insurance are of central importance to deal with many policy issues. This article presents estimates of the parameters of a labor supply function are presented in this article. The specification of the labor supply function has been varied in three main forms to reach estimates. First, within the framework of the linear IV model, we can vary the set of exogenous regressors, the set of exogenous instruments, and the set of regressors made endogenous (that is, instrumented). Second, we introduce models that consider explicitly the censored nature of variables. Finally, we compare the results obtained from a cross-sectional dataset, and a sample that has longitudinal features. After choosing a baseline specification we found that the variations in estimates due to changes in statistical methods or do not seem to be very important. Thus, the wage-elasticity of hours worked is similar across IV specifications, models that correct for censoring and models that use longitudinal information. The baseline models imply near-zero wage-elasticities for both genders. For men, the impact of having children of all ages at home is large and positive: males with children work more. For women there is a negative impact of having children, and the small-children variable has a larger impact on hours worked. The variable for other family income has a positive effect on hours of both men and women.