Labor Supply with Social Interactions: Econometric Estimates and Their Tax Policy Implications

Our econometric research allows for a possible response of a person's hours worked to hours typically worked by members of a multidimensional labor market reference group that considers demographics and geographic location. Instrumental variables estimates of the canonical labor supply model expanded to permit social interactions pass a battery of specification checks and indicate positive and economically important spillovers for adult men. Ignoring or incorrectly considering social interactions in male labor supply can misestimate the response to tax reform by as much as 60 percent.