Centrum Analiz Ekonomicznych

Working Paper 01/14

Stability of elasticity estimates in the context of significant changes in labour market incentives

Michał Myck

Abstract:

Using unique developments on the Polish labour market between 2005 and 2009 we examine the stability of labour supply elasticities in conditions of rapidly changing fi nancial incentives to work. The estimated elasticities reflect substantial labour supply responsiveness in examined samples of Polish couples with total (net earnings) elasticities ranging from 0.2-0.5 for men and from 0.6-0.7 for women depending on the year of data and method of estimation. The analysis confi rms the importance of accounting for unobserved heterogeneity in the models, although this does not provide for greater stability of elasticity estimates. We use the estimated models to calculate the labour supply eff ect of tax and benefi t reforms implemented between 2005 and 2009 and compare these to actual changes in employment in Poland.

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