Labour Supply Elasticities in New Zealand

Abstract

The aim of this paper is to explore alternative labour supply elasticity concepts in cross-sectional contexts and to present estimates for New Zealand. Emphasis is placed on the elasticity of hours worked with respect to a change in the gross wage rate, though it is shown that the gross wage elasticity is usually sufficient when considering labour supply responses to effective marginal tax rate changes. The elasticities presented here, for both intensive and extensive margins and for a range of demographic groups, are based on simulated labour supply responses to a proportional change in gross wage rates using the New Zealand Treasury’s behavioural microsimulation model, Taxwell-B. This uses a discrete-hours random-utility specification of preferences. Comparisons are made with the only previous estimates for NZ. As for other countries, elasticities at the extensive margin are found to be larger than at the intensive margin.