Intertemporal Substitution and Household Production in Labor Supply
35 Pages Posted: 21 Feb 2005
Date Written: October 2004
The demands on a person's time vary over their working life, so that the years in which they might be expected to devote most time to work may also be the period when other commitments, such as bringing up children, are most pressing. Estimates of the intertemporal labor supply elasticity that do not take this possibility into account are likely to be biased. Recent research that uses US data from three time-use surveys has found evidence for a large downward bias to the labor supply elasticity. This paper uses a large UK survey to test this hypothesis. It finds convincing evidence for a similar downward bias in estimates of the UK labor supply elasticity for males. The analysis is extended by differentiating by sex, marital status, skill and business cycle. The bias appears in every case, but is less evident for married men. The labor supply elasticity for single women is, interestingly, similar to that for single men.
Keywords: Labor supply, intertemporal substitution, home production, bias
JEL Classification: J20, J22, C33
Suggested Citation: Suggested Citation