Labor Supply Elasticities: Overcoming Nonclassical Measurement Error Using More Accurate Hours Data

Abstract

We measure the impact of measurement error in labor-supply elasticities estimated over recalled usual work hours, as is ubiquitous in the literature. We employ data on hours of work in diaries collected by the American Time Use Survey, 2003-15, along with the same respondents’ recalled usual work hours. Estimates using the latter yield elasticities that are positively biased. We argue that this bias arises from the salient effects of differences in wage rates on recalled hours.