Labor Supply Elasticities: Overcoming Nonclassical Measurement Error Using More Accurate Hours Data

We measure the impact of measurement error in labor-supply elasticities estimated over recalled usual work hours, as is ubiquitous in the literature. We employ data on hours of work in diaries collected by the American Time Use Survey, 2003-15, along with the same respondents’ recalled usual work hours. Estimates using the latter yield elasticities that are positively biased. We argue that this bias arises from the salient effects of differences in wage rates on recalled hours. *Garry Barrett is a professor of economics at the University of Sydney and a research fellow at IZA. Daniel Hamermesh is Distinguished Scholar at Barnard College, professor emeritus at the University of Texas at Austin and Royal Holloway, University of London, and research associate, IZA and NBER. We thank Kadir Atalay, Colin Cameron, Jay Stewart, Felix Weinhardt and two referees for helpful comments. Corresponding author: Garry Barrett, School of Economics, University of Sydney 2006, Australia, [email protected]. The data used in this article can be obtained beginning six months after publication through three years hence from Daniel Hamermesh, University of Texas at Austin, [email protected]. Barrett and Hamermesh, Page 2