Declining Female Labor Supply Elasticities in the U.S. And Implications for Tax Policy: Evidence from Panel Data

49 Pages Posted: 17 Aug 2015 Last revised: 21 Feb 2019

See all articles by Anil Kumar

Anil Kumar

Federal Reserve Bank of Dallas - Research Department

Che-Yuan Liang

Uppsala University - Department of Economics

Date Written: 2015-01-01

Abstract

Recent work has provided compelling evidence of a long-term decline in US female labor supply elasticities with respect to wages and to income. While previous work used cross-sectional data from the Current Population Survey (CPS), we reexamine the trend for married women using panel data from the Panel Study of Income Dynamics (PSID) from 1980 to 2006. We find evidence in support of a long-term decline in married females’ labor supply elasticities on the participation margin, but less so on the hours margin. We also extend the analysis to investigating the implications of these results on welfare effects of tax reforms. Policy simulations indicate that shrinking elasticities, mostly concentrated on the participation margin, have contributed to a dramatic decline in welfare gains from actual and potential tax reforms since the 1980’s.

Keywords: Female labor supply, Taxes and labor supply

JEL Classification: H21, H24, H31, J22

Suggested Citation

Kumar, Anil and Liang, Che-Yuan, Declining Female Labor Supply Elasticities in the U.S. And Implications for Tax Policy: Evidence from Panel Data (2015-01-01). FRB of Dallas Working Paper No. 1501, Available at SSRN: https://ssrn.com/abstract=2643986 or http://dx.doi.org/10.24149/wp1501

Anil Kumar (Contact Author)

Federal Reserve Bank of Dallas - Research Department ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Che-Yuan Liang

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden

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