Estimates of the Frisch Elasticity of Labor Supply: A Review

Jul 16, 2026

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Reviews literature on the Frisch elasticity, defined as substitution elasticity plus workers’ willingness to trade labor for consumption over time in response to temporary after-tax compensation changes. Reports policy-relevant estimates ranging from 0.27 to 0.53 (central estimate 0.40) and shows that differing Frisch elasticities materially affect modeled labor-supply responsiveness to fiscal policy changes. Discusses how estimates vary by micro vs macro data and by intensive vs extensive labor-market margins.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages6

Reading Time15 min

Eastern Economic Journal, 2017, 43,(37–42)© 2016 EEA 0094-5056/16 [www.palgrave.com/journals](www.palgrave.com/journals) Estimates of the Frisch Elasticity of Labor Supply: A Review Charles Whalen and Felix Reichling Congressional Budget Ofﬁce, Washington, DC 20515, USA. This article assesses the literature on the responsiveness of the supply of labor in the case of a temporary change in after-tax compensation. In particular, it reviews the literature on the Frisch elasticity—the sum of the substitution elasticity and a measure of people’s willingness to trade work for consumption over time. The authors ﬁnd that the estimates of the Frisch elasticity most relevant for ﬁscal policy analysis range from 0.27 to 0.53 (with a central estimate of 0.40) . Using that range, they illustrate how different Frisch elasticities affect the responsiveness of labor supply to changes in ﬁscal policies. The illustration shows that estimation of the Frisch elasticity can have a signiﬁcant inﬂuence on analyses of the economic effects of such policy changes. Eastern Economic Journal (2017) 43, 37–42. doi:10.1057/eej.2015.23; published online 27 April 2015 Keywords: Frisch elasticity; labor supply; ﬁscal policy JEL: J22 INTRODUCTION In choosing how much to work, people respond to incentives that are partly determined by federal ﬁscal policies. The effects of changes in federal taxes and spending on economic output will depend in part on the responsiveness of the supply of labor to those changes in policy. This article assesses the literature on that responsiveness in the case of a temporary change in after-tax compensation. In particular, the article reviews the literature on the Frisch elasticity. Approaches to estimating the responsiveness of labor supply vary according to whether changes in aftertax compensation are viewed as permanent or temporary. The responsiveness to a permanent change in after-tax compensation—a tax cut that would permanently reduce marginal tax rates, for example — can be measured by the substitution and income elasticities.1 The responsiveness to a one-time, temporary change in after-tax compensation is described by the Frisch elasticity, which is the sum of the substitution elasticity anda measure of people’s willingness to trade work for consumption over time.2 Estimates of the Frisch elasticity can be generated using data on changes in individuals’hours of work or data on changes in the total hours worked in the economy. Estimates based on data for individuals — micro data — vary substantially not only with the assumptions made in the estimation process but also with the individuals studied. For example, estimates of the Frisch elasticity are often different for women and men as well as for younger and older workers. Estimates based on changes in the total hours worked in the economy — macro data — are generally much larger than those based on micro data. Estimates of the Frisch elasticity also depend on whether chan

Jul 16, 2026

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