The Evolution of the Wage Elasticity of Labor Supply over Time

Abstract

The uncompensated wage elasticity of labor supply is a fundamental parameter in economics. Despite its central role, few papers have studied directly how it has changed over time. We examine the evolution of this elasticity over the last four decades. We find robust evidence that the elasticity weakly increased between 2000 and 2020, representing a striking reversal from the sizable declines for single and married women between 1979 and 2000. We additionally find that these changes mostly arose on the extensive margin. Using our model, we conduct a series of counterfactual simulations to identify the factors responsible for these trends.