Abstract

This paper estimates the Frisch elasticity of labour supply for men and women using longitudinal data from the NLSY97. A central challenge in identifying labour supply elasticities is finding strong and valid instruments for wage changes. Building on existing approaches, initially ASVAB cognitive test scores are used as an instrument. While ASVAB scores provide a valid instrument for men, they perform poorly for women. To address this, lagged income is proposed as a new instrument. Lagged income proves to be highly relevant and valid for both men and women, with first-stage F-statistics exceeding
conventional thresholds. Using this approach, the Frisch elasticity is estimated at approximately 0.45 for men and 0.73 for women, suggesting that women’s labour supply is more responsive to wage changes. These results have important policy implications for. the design of tax policy, welfare programs, and labour market interventions. The findings also highlight the importance of carefully selecting instruments in empirical labour economics and opens avenues for future research on gender-specific labour supply dynamics.

Keywords: OLS, 2SLS, instrument variable, tax, frisch elasticity, female labour supply, women's labour participation, gendered analysis

How to Cite:

Faisal, M., (2025) “Estimating the Frisch Elasticity with New Instruments: Lessons from a Gender-Specific Analysis”, UCL Journal of Economics 4(1). doi: https://doi.org/10.14324/111.444.2755-0877.2037