Econometrica: Nov 2018, Volume 86, Issue 6

Aggregating Elasticities: Intensive and Extensive Margins of Women's Labor Supply

DOI: 10.3982/ECTA15067
p. 2049-2082

Orazio Attanasio, Peter Levell, Hamish Low, Virginia Sánchez‐Marcos

We show that there is substantial heterogeneity in women's labor supply elasticities at the micro level and highlight the implications for aggregate behavior. We consider both intertemporal and intratemporal choices, and identify intensive and extensive responses in a consistent life‐cycle framework, using US CEX data. Heterogeneity is due to observables, such as age, wealth, hours worked, and the wage level, as well as to unobservable tastes for leisure: the median Marshallian elasticity for hours worked is 0.18, with corresponding Hicksian elasticity of 0.54 and Frisch elasticity of 0.87. At the 90th percentile, these values are 0.79, 1.16, and 1.92. Responses at the extensive margin explain about 54% of the total labor supply response for women under 30, although this declines with age. Aggregate elasticities are higher in recessions, and increase with the length of the recession. The heterogeneity at the micro level means that the aggregate labor supply elasticity is not a structural parameter: any aggregate elasticity will depend on the demographic structure of the economy as well as the distribution of wealth and the particular point in the business cycle.



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