Asymmetric Frisch Elasticity of Labor Supply

In the paper, the authors propose a mechanism that generates an asymmetric Frisch elasticity of the aggregate labor supply. Based on Australian panel data, they document three stylized facts on the labor supply: (i) there are significant gaps between actual and preferred hours of work among workers, (ii) the distribution of the hours gap is asymmetric: workers are over-employed on average, and (iii) preferred hours decline steadily with age. The authors build a quantitative model that features a fixed cost of changing hours and increasing disutility of work over the life cycle. The model successfully matches the above facts and, as a result, exhibits an asymmetric labor supply–compatible with a moderately elastic labor supply over the business cycle and at the same time an inelastic one found in studies based on tax holidays.