Interpreting Labor Supply Regressions in a Model of Full- and Part-Time Work

May 2011
With Yongsung Chang, Sun-Bin Kim, Yuooho Kwon; American Economic Review, Vol. 101, No. 3

We construct a family model of labor supply that features adjustment along both the intensive and extensive margin. Intensive margin adjsutment is restricted to two values: full-time work and part-time work. Using simulated data from the steady state of the calibrated model, we examine whether standard labor supply regressions can uncover the true value of the intertemporal elasticity of labor supply parameter. We find positive estimated elasticities that are larger for women and that are highly significant, but they bear virtually no relationship to the underlying preference parameters.