The labor-supply elasticity and borrowing constraints: Why estimates are biased

The labor-supply elasticity is a central element in many macroeconomic models. We argue that assumptions underlying previous econometric estimates of the intertemporal labor supply elasticity are inconsistent with incomplete markets economies. In particular, if the econometrician ignores borrowing constraints, the elasticity will be biased downwards. Within our model, the bias may be up to 50 percent. We find a similar bias in PSID data.

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Year of publication:	2001
Authors:	Domeij, David ; Flodén, Martin
Publisher:	Stockholm : Stockholm School of Economics, The Economic Research Institute (EFI)
Subject:	Arbeitsangebot \| Substitutionselastizität \| Verschuldungsrestriktion \| Bias \| Theorie \| labor supply elasticity \| intertemporal substitution \| liquidity constraints

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Series:	SSE/EFI Working Paper Series in Economics and Finance ; 480
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	337916292 [GVK] hdl:10419/56163 [Handle]
Classification:	C20 - Econometric Methods: Single Equation Models. General ; C50 - Econometric Modeling. General ; E20 - Consumption, Saving, Production, Employment, and Investment. General ; J22 - Time Allocation and Labor Supply
Source:	EconStor

Persistent link: https://www.econbiz.de/10010281242