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Accounting for Limited Commitment between Spouses when Estimating Labor-Supply

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Listed:
  • Christian Bredemeier

    (University of Wuppertal)

  • Jan Gravert

    (University of Wuppertal)

  • Falko Juessen

    (University of Wuppertal)

Abstract

The Frisch elasticity of labor supply can be estimated by regressing hours worked on the hourly wage rate, controlling for consumption of the individual worker. However, most household panel surveys contain consumption information only at the household level. We show that proxying individual consumption by household consumption biases estimated Frisch elasticities downward as limited commitment in the household induces individual consumption to behave differently from household consumption. We develop an improved estimation approach that eliminates this bias by exploiting information on the composition of household consumption to infer its distribution. Using PSID data, we estimate Frisch elasticities of about 0.65 for men and 0.8 for women. (Copyright: Elsevier)

Suggested Citation

  • Christian Bredemeier & Jan Gravert & Falko Juessen, 2023. "Accounting for Limited Commitment between Spouses when Estimating Labor-Supply," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 547-578, December.
    • Handle: RePEc:red:issued:21-231
    DOI: 10.1016/j.red.2023.06.002
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    1. Bredemeier, Christian & Ndlovu, Patrick & Vujic, Suncica & Winkler, Roland, 2024. "Household Decisions and the Gender Gap in Job Satisfaction," IZA Discussion Papers 16760, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Labor-supply elasticity; Limited commitment; Intra-household decision making; Couple households; Consumption;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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