Document Type

Working Paper

Date

9-2006

Embargo Period

10-3-2012

Keywords

Policy, Labor, Economics

Disciplines

Economics | Labor Economics | Public Affairs, Public Policy and Public Administration

Description/Abstract

Our research fleshes out econometric details of examining possible social interactions in labor supply. We look for a response of a person's hours worked to hours worked in the labor market reference group, which includes those with similar age, family structure, and location. We identify endogenous spillovers by instrumenting average hours worked in the reference group with hours worked in neighboring reference groups. Estimates of the canonical labor supply model indicate positive economically important spillovers for adult men. The estimated total wage elasticity of labor supply is 0.22, where 0.08 is the exogenous wage change effect and 0.14 is the social interactions effect. We demonstrate how ignoring or incorrectly considering social interactions can mis-estimate the labor supply response of tax reform by as much as 60 percent.

Source

local input

Creative Commons License


This work is licensed under a Creative Commons Attribution 3.0 License.