Labour supply elasticity estimates for Australian workers: evidence from the HILDA survey

Crawford School of Public Policy | Arndt-Corden Department of Economics

Event details

PhD Seminar (Econ)

Date & time

Friday 26 April 2019


Seminar Room 1, #132 Lennox Crossing, ANU


Owen Freestone


Paul Burke, Convener

The elasticity of labour supply to changes in the after-tax wage is an important factor in many economic and policy questions, yet little empirical evidence exists on its value in Australia. The study uses panel data to estimate the Frisch (or wealth-compensated) elasticity for the Australian population aged 26–60, incorporating both the hours (intensive) and participation (extensive) margins of response. The study finds that the aggregate elasticity is large, with estimates ranging from 1.5 to 2.3 using a variety of techniques. This is well above the 0.0 to 0.4 range found in conventional international micro studies, which typically ignore the extensive margin and only consider prime-age men. Indeed, the results show a relatively large labour supply response by women and older age groups. They also reveal a large extensive margin elasticity, especially for women. The empirical findings can help inform the design of Australian tax and transfer policies.

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