Using Labor Supply Elasticities to Learn about Income Inequality : The Role of Productivities versus Preferences
This paper argues that labor supply elasticities encode information about the determinants of income inequality. In the theoretical framework, individuals choose labor supply conditional on productivities and preferences for consumption relative to...
| Main Authors: | , |
|---|---|
| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/764311578322352997/Using-Labor-Supply-Elasticities-to-Learn-about-Income-Inequality-The-Role-of-Productivities-versus-Preferences http://hdl.handle.net/10986/33151 |
| Summary: | This paper argues that labor supply
elasticities encode information about the determinants of
income inequality. In the theoretical framework, individuals
choose labor supply conditional on productivities and
preferences for consumption relative to leisure. The paper
shows that reduced-form labor supply elasticities allow one
to isolate the components of income due to productivities
versus preferences. The paper then investigates what labor
supply elasticities imply about the importance of
productivities versus preferences in the United States.
Estimates from the literature imply productivities drive
most of income inequality. Larger income effects and larger
differences between income and hours worked elasticities
imply preferences play an increasingly important role. |
|---|