Review of Estimates of the Frisch Elasticity of Labor Supply: Working Paper 2012-13

October 25, 2012
Working Paper
Review of Estimates of the Frisch Elasticity of Labor Supply

Summary

By Felix Reichling and Charles Whalen

Among the models that CBO uses to analyze the economic effects of changes in federal fiscal policy is a life-cycle growth model. That model requires an estimate of the responsiveness of the supply of labor to a one-time temporary change in after-tax compensation, which is described by the so-called Frisch elasticity. CBO incorporates into its analyses an estimate of the Frisch elasticity that ranges from 0.27 to 0.53, with a central estimate of 0.40. This paper describes how CBO derived that range from the research literature.