The Labor Supply Elasticity for Married Men in Russia

In order to estimate the elasticity of labor supply in Russia, we use an estimation approach based on the works of [Altonji, 1986; Kimmel, Kniesner, 1998], which allows one to obtain the values of the structural parameters of the utility function needed to calculate the Marshallian, Hicksian, and Frisch labor supply elasticities by estimating the marginal rate of substitution equation. Using a five-step estimation procedure we eliminate the important sources of estimation bias: measurement errors, selection bias, correlation of wages and consumption with unobserved preferences for consumption and leisure. The paper provides an econometric analysis of the labor supply function in Russia for the period 2000–2018 based on RLMS–HSE microdata for married men. The analysis indicates that wage rates for men in Russia are increasing at a decreasing rate. In addition, grow in inflation reduces consumer spending on non-durable goods, which may be due to the reaction of individuals to an increasing level of uncertainty in future income, expressing in decreased propensity to consume and increased savings, which is referred to as the precautionary motive. Estimates of the hours worked equation show that the labor supply of men in the Russian economy reacts weakly to permanent wage shocks, in contrast to transitive ones. Moreover, the change in hours worked in response to a negative permanent shock is positive, indicating that the income effect prevails over the substitution effect. Based on the calculations performed, estimates of Frisch (0,139), Hicksian (0,119) and Marshallian (–0,029) labor supply elasticities along the intensive margin for men were obtained. The calculated elasticities can be used in evaluating various tax policy measures.