Labor Supply with Social Interactions: Econometric Estimates and Their Tax Policy Implications
38 Pages Posted: 28 Sep 2007
Date Written: September 2007
Our econometric research allows for a possible response of a person's hours worked to hours typically worked by members of a multidimensional labor market reference group that considers demographics and geographic location. Instrumental variables estimates of the canonical labor supply model expanded to permit social interactions pass a battery of specification checks and indicate positive and economically important spillovers for adult men. Ignoring or incorrectly considering social interactions in male labor supply can mis-estimate the response to tax reform by as much as 60 percent.
Keywords: labor supply, social interactions, reference group, instrumental variables, social multiplier, PSID
JEL Classification: J22, Z13
Suggested Citation: Suggested Citation