Wage Elasticity Of Labor Supply Research Articles

Sampling variability: some observations from a labour supply equation

In economics, the number of observations available for empirical work is often predetermined. Researchers assume some large sample distribution and carry through with measurement and testing applied to data sets of varying sizes. The consequences of sampling variability are generally ignored. It is shown in a re-sampling experiment, using data sets of different sizes and estimating log-linear male labour supply equations, that a wide range of what appears to be statistically supported estimates of the wage elasticity of labour supply are generated. Testing based on bootstrapped estimates shows that 4000 observations are required to reduce sampling variability to statistically acceptable levels.

Is Tomorrow Another Day? The Labor Supply of New York City Cabdrivers

The labor supply of taxi drivers is consistent with the existence of intertemporal substitution. My analysis of the stopping behavior of New York City cabdrivers shows that daily income effects are small and that the decision to stop work at a particular point on a given day is primarily related to cumulative daily hours to that point. This is in contrast to the analysis of Camerer et al., who find that the daily wage elasticity of labor supply of New York City cabdrivers is substantially negative, implying large daily income effects. This difference in findings is due to important differences in empirical methods and to problems with the conception and measurement of the daily wage rate used by Camerer et al.

Determinants of Labor Supply and Labor Force Participation in the West Bank and Gaza Strip

This study estimated labor supply and labor force participation rate functions in the West Bank and Gaza Strip by using regression analysis. It was found that the discouraged workers’ effect dominated the added workers’ effect in both the West Bank and Gaza labor force. Also, it was found that the effect of real wages policies was significant on labor supply in the West Bank owing to the high uncompensated wage elasticity of labor supply. However, wage policies did not affect labor supply in Gaza. Further, labor supply elasticity, with respect to labor demand, was relatively high which indicates that policies aimed at reducing unemployment should focus on job creation, but not on policies affecting labor supply. Finally, the results showed that current labor supply was positively related to labor supply in the previous period.

A labor market based theory of regional economic development

The Borts and Stein (1964) theory of regional economic growth and development has been widely accepted and discussed in regional economic development literature. Given their assumption that labor demand conditions are invariant between regions and that the labor demand is highly wage elastic, they conclude that regional growth is primarily supply driven and differences in growth among regions arise due to differences in the growth of labor supply assuming that wage elasticity of labor supply is the same across regions. Muth (1968, 1971) claims to have verified the Borts and Steins (BS) conclusion. We propose a regional labor market based model of economic development similar to BS with certain modifications in assumptions and show that the Borts-Stein-Muth (BSM) conclusion is based upon a narrow view of labor demand and supply elasticities. Our theory demonstrates that regional development is mainly labor demand driven once we adopt a broader view of elasticities. The broader view incorporates the direct effect of wages on labor supply and labor demand as well as the indirect effects of wages through changes in inmigration and firms' formations in a region.

A Structural Model of Multiple Welfare Program Participation and Labor Supply

Work on estimating the labor supply effects of high marginal tax rates in welfare programs has been hindered by the difficulty of estimating the effects of participation in multiple welfare programs simultaneously. The authors solve this problem by applying methods of simulation estimation to a model of labor supply and multiple program participation. The results show asymmetric wage and tax rate effects, with fairly large wage elasticities of labor supply but very inelastic responses to moderate changes in cumulative marginal tax rates, implying that high welfare tax rates do not necessarily induce major reductions in work effort. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Green Policies and Public Finance in a Small Open Economy

We explore the effects of greener preferences for the public finances, employment, and the domestic capital stock in a second-best framework. We find that greener preferences typically result in capital flight. Also, employment declines despite the factor substitution that is induced by a lower tax on labour and a higher tax on natural resources. If the uncompensated wage elasticity of labour supply is positive, private utility declines. Public consumption, in contrast, may rise if most of the improvement in environmental quality occurs through a lower level rather than a cleaner composition of economic activity. However, if the labour supply curve bends backwards, private utility rises while public consumption falls. I. Introduction The deterioration of the natural environment constitutes one of the major challenges facing public policy today. Business groups are concerned that environmental protection induces both capital flight and major losses in private income. Environmental groups, in contrast, maintain that a more ambitious environmental policy may not impose large costs. In particular, environmental taxation may be attractive, especially for the high-tax countries of Western and Northern Europe. In these countries, the

The Effects of Product Price Uncertainty on the Owner-Managed Firm: Theory and Evidence

In this paper we extend the theory of the owner-managed firm to incorporate product price uncertainty, and we present an empirical test of the model's predictions. Under product price uncertainty, the trade-off between leisure and profit faced by an owner-manager is combined with the trade-off between surety and risk-bearing faced by an entrepreneur. The firm's owner bears the uninsurable and undiversifiable risk about profit caused by product price uncertainty and, as manager, supplies the firm a unique labor factor. The model predicts that the substitution effect of an increase in risk on the quantity supplied by the firm is negative. The income effect of risk reinforces the substitution effect if the entrepreneur's labor supply has a positive wage elasticity, but runs counter to and could dominate the substitution effect if the wage elasticity of labor supply for the entrepreneur is sufficiently negative. Unlike previous research on price uncertainty and the firm, this paper presents an empirical test of the model's predictions. Using data on physicians in solo practice, our empirical analysis indicates that, although wage elasticities of labor supply for the physician-entrepreneurs are negative, greater risk leads to a reduction in output. These results suggest that the substitution effect is dominant in determining the response to product price uncertainty for the owner-managed firms in our sample. Frank Knight [12] gave prominence to the risk-bearing role of the entrepreneur who, as residual claimant, bears the risk associated with a firm's revenue. Tibor Scitovsky [21] later emphasized a different aspect of entrepreneurial activity, the trade-off confronted by an ownermanager between consumption of leisure and pursuit of profit. Both models of the entrepreneur are relevant to predicting the behavior of an owner-managed firm operating in a risky environment. The entrepreneur in such a firm must choose between consuming leisure and supplying labor which provides an uncertain return, the random residual of revenue net of payments to other factors.

Energy-capital substitution, wage flexibility and aggregate output supply

This paper analyzes the relationship between factor substitution, labor market conditions and aggregate output supply in order to study the transmission mechanism of energy price change to the rest of the economy. It shows that the energy-capital complementarity vs. substitutability issue may turn out to be crucial in shaping the direction of the adjustment of aggregate output supply following energy price changes. How crucial it is, it is shown to depend on the beliefs of firms regarding the stock of capital, on the degree to which labor markets clear, and on the wage elasticity of labor supply. Some empirical evidence is presented about the relationship between energy price changes and output supply.