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

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 crosssectional 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.

The Impact of Employment on Parental Coresidence

“…Traditionally, women have had more elastic labor supply, especially on the extensive margin. However, Blau and Kahn () and Kumar and Chang () have argued that female labor supply elasticities have converged toward male labor supply elasticities over time with the secular increase in female labor force participation. To reflect any potential differences in responsiveness to employment changes by sex, we present separate estimates for sons and daughters below.…”

Intertemporal Elasticity of Substitution with Leisure Margin†

“…Stockholders must satisfy at least one of the criteria from (ii), (iii), (iv), and (v). Unlike financial asset holders, they do not 35 For example, see Apps and Rees (2005), Bishop et al (2009), Blau and Kahn (2007), and Kumar and Liang (2016). 36 See, for example, Attanasio and Browning (1995), Attanasio and Paiella (2011), Blundell et al (1994), Gorbachev (2011), Guvenen (2006), Mankiw and Zeldes (1991), Cogley (2002), andVissing-Jorgenson (2002).…”