TY  - JOUR
AU  - Kimball,Miles S.
AU  - Shapiro,Matthew D.
TI  - Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14208
PY  - 2008
Y2  - July 2008
UR  - http://www.nber.org/papers/w14208
L1  - http://www.nber.org/papers/w14208.pdf
N1  - Author contact info:
Miles S. Kimball
Department of Economics
University of Michigan
Ann Arbor, MI  48109-1220
Tel: 734/764-2375
Fax: 734/764-2769
E-Mail: mkimball@umich.edu

Matthew D. Shapiro
Department of Economics
University of Michigan
611 Tappan St
Ann Arbor, MI 48109-1220
Tel: 734/764-5419
Fax: 734 764-2769
E-Mail: shapiro@umich.edu
AB  - Labor supply is unresponsive to permanent changes in wage rates.  Thus, income and substitution effects cancel, but are they both close to zero or both large?  This paper develops a theory of labor supply where income and substitution effects cancel, taking into account optimization over time, fixed costs of going to work, and interactions of labor supply decisions within the household.  The paper then applies this theory to survey evidence on the response of labor supply to a large wealth shock. The evidence implies that the constant marginal utility of wealth (Frisch) elasticity of labor supply is about one.
ER  -