On 9 October 2024, Thor O. Thoresen, a researcher in the Research Department at Statistics Norway, gave a lecture at the Institute of Public Finance on the declining labor supply responsiveness of married women. 

Although the labor supply of married women is often more responsive than that of married men, studies find that the gap is narrowing. A recent study of that kind, Explaining the declining labor supply responsiveness of married women, was crafted by Zhiyang Jia, Thor O. Thoresen and Trine E. Vattø. Thoresen’s lecture thoroughly exhibited the methodology and results of this study.

Estimations using a labor supply model show the gross wage elasticity for married women decreased from approximately 0.7 in 1997 to under 0.3 in 2019. A simulation procedure based on the labor supply model is used to explain the decline, focusing on changes in the sociodemographic composition, preferences and labor market options, wages, and tax schemes. 

General wage growth has played a substantial role in reducing responsiveness. Furthermore, socioeconomic and demographic changes have impacted the decline in responses but less than wage growth, whereas changes in preferences and labor market options have had relatively limited effects. Conversely, tax scheme changes have contributed to higher response estimates over time.

Understanding labor supply responses is vital for devising optimal tax and transfer systems, as smaller elasticity estimates imply that progressive tax systems are less costly in terms of efficiency losses.

The lecture was moderated by Ivica Urban, a researcher from the Institute of Public Finance. A presentation is also available.