Using Labor Supply Elasticities to Learn about Income Inequality: The Role of Productivities versus Preferences

摘要

Using a general labor supply model in which individuals choose how much to work conditional on productivities and preferences for con-sumption relative to leisure, we show that the mapping from earnings and hours worked to productivities and preferences can be expressed entirely in terms of reduced-form labor supply elasticities. We inves-tigate the roles that productivities and preferences play in driving income inequality in the United States. Benchmark labor supply elasticity estimates from the literature imply that productivities drive most income inequality. Preferences become increasingly important relative to benchmark, with larger income effects or larger differ-ences between earnings and hours-worked elasticities.