Labor Force Participation Elasticities of Women and Secondary Earners within Married Couples

ISBN-13: 9781506131788 / Angielski / Miękka / 2015 / 36 str.

Congressional Budget Office

Opis

Policymakers use estimates of labor supply elasticities to understand how tax changes affect labor supply and, by extension, tax revenues and economic growth. A number of researchers have estimated these elasticities on both the participation and hours margins. While many studies estimate elasticities close to zero for married men, estimated elasticities among married women have fallen dramatically over the last 40 years and now approach those of married men. The studies present various explanations for this trend-women's stronger attachment to the labor force, increasing levels of educational attainment, and smaller family sizes. These factors also have led to a higher labor force participation rate, which reduces the number of women who could potentially enter the labor force. It is increasingly common for married women to be the primary earners in their families. The share of dual earner couples in which the wife earns more than her husband has increased from 19 percent in 1987 to 29 percent in 2012 (Bureau of Labor Statistics 2014). If couples in which the husband does not work are included, the share of couples in which the wife earns more has increased from 24 percent to 38 percent over that same time period. This change suggests another reason for the decline in wage elasticities of married women. If the secondary worker in a couple is less attached to the labor market than the primary earner, and women are now more likely to be the primary earner, then one would expect to see labor supply elasticities for married women to decline over time. In this paper, we use data derived from a panel of tax returns to examine whether being the marginal worker in a couple (in the sense of having the larger labor supply elasticity) tends to be determined by that member's sex or by his or her relative earnings. Using stylized facts, we demonstrate that lower earning spouses transition into and out of the labor force more frequently than married women. Notably, this result does not hold if the couple starts a family. We then estimate participation elasticities with respect to the net-of-tax rate for women and secondary earners. This allows us to directly compare the results of women and secondary earners using the same data.