∂H
c
∂w
c
while holding hour and wage at the mean levels H
and w
for all countries adjusted for PPP differences in the case of wages. We focus on own- wage elasticities
of total hours, reporting the results in Figure 8. The upper left panel compares elas- ticities in the baseline circles and in this “mean levels” scenario triangles together
with their 95 percent bootstrapped confi dence intervals. The two scenarios are plotted one against the other in the upper right panel. We observe little difference when hold-
ing wages and hours constant, with the only exceptions being Estonia, Hungary, and Portugal the United States, which are pushed in the high low elasticity group under
the mean level scenario. This is clearly due to the NMS and Portugal the United States having signifi cant lower higher wage rates while their female participation
rates are somewhat close to the international average. The lower left right panel represents the “mean hour” “mean wage” scenario, where only hours wages hold
at the international mean value H w. We see that high- elasticity countries like Greece and Spain are not only characterized by lower female labor supply but also by lower
wage rates. However, these two effects cancel each other; consequently, these coun- tries remain in the high- elasticity group under the total mean level scenario. The main
message of this exercise is that cross- country differences are preserved when elastici- ties are evaluated at mean values, and must therefore be explained by other factors.
30
B. Tax- benefi t Systems
The size of hour elasticities might be infl uenced by differences in tax- benefi t systems across countries. Precisely, baseline elasticities are calculated by incrementing gross
wages by 1 percent, as is common in the literature. Accordingly, the fact that high- tax countries are characterized by smaller net wage increments could explain smaller elas-
ticities. To check this point, we simulate a 1 percent increase in the net wage in order to cancel out differences in effective marginal tax rates EMTR across countries due to
different tax schedules or benefi t withdrawal rates. Figure 9 reports total hour elastici- ties in the baseline and this “net- wage increment” scenario. The right panel plots the
two situations, while the left panel additionally indicates the 95 percent bootstrapped confi dence intervals. Elasticities after a 1 percent increase in net wage are generally
larger; indeed, a 1 percent change in gross wages corresponds to smaller increments due to taxation. However, and most importantly, cross- country variation in elasticities is
not truly affected when accounting for differences in implicit taxation of labor income.
C. Demographic Characteristics
We fi nally turn to the role of demographic composition. As indicated in Section III.B, important differences exist across countries in this respect, notably concerning the
number of children yet also the age and education structure. Given that it is plausible
30. We have previously highlighted the importance of distributional differences across countries in the labor supply responses to wages. Thus, difference in elasticity size across countries may lie in the tails. To check
this, we have also replicated the decomposition of elasticities at the fi rst and fi fth income quintiles available from the authors. That is, we have assessed international differences in elasticities at each quintile by de-
composing these differences when holding wages and hours fi xed at quintile-specifi c levels. Our conclusions does not change: Most of the country difference in responses at this income levels remains after controlling
for differences in wage and hours levels.
The Journal of Human Resources 752
.2 .4
.6 .8
1
Elasticity
EE05 UK01
PL05 SW01
FR01 FI98
PT01 US05
HU05 DK98
BE01 GE01
IE01 NL01
IT98 AT
9 8
SP01 GR98
Elasticity baseline Elasticity at mean levels
EE05
UK01 PL05
SW01 FR01
FI98 PT01
US05 HU05
DK98 BE01
GE01 IE01
NL01 IT98
AT98 SP01
GR98
.2 .4
.6 .8
1
Elasticity at mean levels .2
.4 .6
.8 1
Elasticity baseline
EE05 UK01
PL05 SW01
FR01 FI98
PT01 US05
HU05 DK98
BE01 GE01
IE01 NL01
IT98 AT98
SP01 GR98
.2 .4
.6 .8
1
Elasticity at mean hour levels .2
.4 .6
.8 1
Elasticity baseline
EE05 UK01
PL05 SW01
FR01 FI98
PT01 US05
HU05 DK98
BE01 GE01
IE01 NL01
IT98 AT98
SP01 GR98
.5 1
1.5
Elasticity at mean wage levels .2
.4 .6
.8 1
Elasticity baseline
Figure 8 Effect of WageHour Levels on Wage- Elasticities of Total Hours Married Women
that these demographic differences affect the size of mean elasticities, we decompose differences in elasticities across countries to investigate this point, using an approach
similar to that in Heim 2007. Let i denote a woman’s age cohort, j her education group, and k the number of her children.
31
Let ε
ijk ,c
denote the wage elasticity of total hours for a woman of type ijk in country c
. The mean elasticity in this country, ε
c
, can be written as a weighted average ⌺
i
⌺
j
⌺
k
P
ijk ,c
ε
ijk ,c
, where P
ijk ,c
denotes the proportion of women of type ijk in this coun- try. This proportion can be rewritten as
P
ijk ,c
= P
i,c
P
j|i,c
P
k|ij,c
where P
i,c
denotes the proportion of women in age cohort i in country c, P
j|i,c
the proportion of women in education group j given membership in age cohort i, and P
k|ij,c
denotes the proportion of women with k children given membership in age cohort i and education group j.
Letting P
denote the mean proportion of a certain type over all countries, the propor- tion P
ijk,c
can be expressed as: 8
P
ijk ,c
= P
i
P
j|i
P
k|ij
+ P
i,c
− P
i
P
j|i
P
k|ij
+ P
i,c
P
j|i,c
− P
j|i
P
k|ij
+ P
i,c
P
j|i,c
P
k|ij,c
− P
k|ij
. This expression can be used to decompose the mean elasticity where
ε
ijk
denotes the mean elasticity for type ijk over all countries:
31. In our application, we retain three age groups aged 18–35, 36–45, and 45–59, two education groups, and three family sizes no children, 1–2 children, and 3 children or more. Refi ning with three education
groups leads to too many empty cells.
.2 .4
.6 .8
1
Elasticity
EE05 UK01
SW01 UK98
FR01 FI98
PT01 US05
HU05 SW98
FI01 FR98
BE98 DK98
GE98 BE01
GE01 IE01
NL01 IT98
AT 9
8 IE98
SP01 GR98
SP98 Elasticity baseline
Elasticity net wage
EE05 UK01
SW01 UK98
FR01 FI98
PT01 US05
HU05 SW98
FI01 FR98
BE98 DK98
GE98 BE01
GE01 IE01
NL01 IT98
AT98 IE98
SP01 GR98
SP98
.2 .4
.6 .8
1
Elasticity net wage
.2 .4
.6 .8
1 Elasticity baseline
Figure 9 Effect of Tax- Benefi t Systems on Wage- Elasticities of Total Hours
9 ε
c
= ⌺
i
⌺
j
⌺
k
P
i
P
j|i
P
k|ij
ε
ijk
+ ⌺
i
⌺
j
⌺
k
P
i,c
− P
i
P
j|i
P
k|ij
ε
ijk
+ ⌺
i
⌺
j
⌺
k
P
i,c
P
j|i,c
− P
j|i
P
k|ij
ε
ijk
+ ⌺
i
⌺
j
⌺
k
P
i,c
P
j|i,c
P
k|ij,c
− P
k|ij
ε
ijk
+ ⌺
i
⌺
j
⌺
k
P
i,c
P
j|i,c
P
k|ij,c
ε
ijk ,c
− ε
ijk
. The decomposition starts with the overall mean weighted elasticity, a term common
to all countries, while the next term denotes how elasticities vary due to the differ- ent composition of age cohorts, keeping the distributions of education and family
size constant within an age group. Keeping the distribution of the number of children within education levels constant, the variation in elasticities due to different education
levels is captured in the third component. The fourth term indicates the difference in elasticities due to different distributions of family size, and the last component
denotes the difference in elasticities left explained by different elasticities within an age- education- children cell, which can be interpreted as a residual difference due to
factors other than composition effects for instance, differences in preferences. The results of this decomposition are presented in Figure 10. We show the deviation of
the country- specifi c elasticities from the mean elasticity that can be attributed to dif- ferences pertaining to each of the three demographic factors, as well as the residual,
unexplained difference. It turns out that differences in demographic composition re- garding age and education are never statistically signifi cant while variation in family
size contributes very slightly to larger elasticities in some countries, including Estonia, France, Ireland, Portugal, and Spain. However, these differences are only signifi cant
in a few cases, and certainly do not explain the bulk of country differences. Once controlling for these composition effects, the residual term corresponding to “overall”
differences in labor- supply responsiveness shows a signifi cantly positive effect for Greece, Ireland, and Spain the high- elasticity group and a signifi cantly negative
effect for Finland, France, Sweden, the United Kingdom, and the United States the low- elasticity group. Therefore, we must conclude that differences in demographic
compositions between countries are not responsible for variations in labor supply elas- ticities.
32
D. Alternative Explanations
