Social and Behavioral Sciences Commons^™

The Anatomy Of The Aggregate Labor Supply Elasticity, Riccardo Fiorito, Giulio Zanella

riccardo fiorito

Aggregate Frisch elasticity of labor supply can greatly exceeed the corresponding individual parameter. We show this using PSID microdata to be compared with an aggregate based on the same units. The corresponding Macurdy equations confirm a standard micro elasticity of about 0.1 and a much larger aggregate elasticity ranging from 1.1 to 1.7. There is no conflict since the micro elasticity reflects only the intensive margin while the macro reflects also the much more volatile extensive margin. These findings suggest that micro-evidence is not a benchmark to assess how large the Frisch elasticity is in a model of the aggregate …