Calibrated Labor Supply Elasticity of Housing Subsidies
Determining how low-income households respond to housing subsidies requires estimating underlying income and wage elasticities to predict labor supply adjustments.
Picture this
By comparing workers who received housing coupons against workers who did not, economists calculate how much people reduce work when given unearned income (income elasticity) versus when their effective hourly take-home pay drops (compensated wage elasticity).
What the evidence says
Calibrated utility parameters ($\mu = 0.7285$) yield an income elasticity of -0.09 and a compensated wage elasticity of 0.15.
- Who
- N = 42,358 low-income, working-age, able-bodied adults; Chicago, Illinois.
- How
- Structural calibration of a Constant Elasticity of Substitution (CES) utility model using experimental treatment and control group means for post-tax wages, hours worked, and virtual income.
What to do
Apply calibrated income (-0.09) and compensated wage (0.15) elasticities when modeling structural labor supply changes in response to means-tested transfer adjustments.
From the source
"Our simple calibration exercise suggests an income elasticity of -0.09 and a compensated wage elasticity of 0.15."
The Effects of Housing Assistance on Labor Supply: Evidence from a Voucher Lottery