Estimates of the Frisch Elasticity of Labor Supply: A Review

Abstract

This article assesses the literature on the responsiveness of the supply of labor in the case of a temporary change in after-tax compensation. In particular, it reviews the literature on the Frisch elasticity — the sum of the substitution elasticity and a measure of people’s willingness to trade work for consumption over time. The authors find that the estimates of the Frisch elasticity most relevant for fiscal policy analysis range from 0.27 to 0.53 (with a central estimate of 0.40). Using that range, they illustrate how different Frisch elasticities affect the responsiveness of labor supply to changes in fiscal policies. The illustration shows that estimation of the Frisch elasticity can have a significant influence on analyses of the economic effects of such policy changes.