3 - Empirical studies of static labor supply models: introduction, with a summary of “first-generation” results

Summary

Empirical studies of static labor supply models are of interest for at least four reasons. First, they may be used to test the predictions and implications of theoretical models: For example, is the ownsubstitution effect of a wage increase on labor supply positive? Second, such studies may provide information on the signs and magnitudes of effects about which theoretical models make no a priori predictions: For example, is leisure a normal good, and is the labor supply schedule backward bending? Third, such studies may shed light on a variety of important labor market developments, such as the phenomenal increase in labor force participation of women (particularly married women) in the past quarter century or the apparent constancy over the past four decades of the length of the average workweek. Fourth, empirical studies are an important tool for evaluation of proposed government policies: For example, will tax cuts or transfer program increases affect work effort, and, if so, by how much?

In principle, empirical analysis of labor supply models is straightforward. One adopts a specification for the labor supply function, collects data for a sample of observations (e.g., individuals) on the variables that appear in the function, and then computes the regression of labor supply on those variables. However, the actual history of empirical work on static labor supply models is much more complicated than this abstract outline suggests.