Recreation, home production, and intertemporal substitution of female labor supply: Evidence on the intensive margin

The predicted labor supply responses to wage and price variations are important when discussing the economic efficiency of taxes and subsidies, and their extent may also be relevant to the analysis of economic fluctuations. This paper presents new estimates of the wage intertemporal substitution elasticity (ISE) for the intensive margin of female labor supply. It likewise explores this marginʼs sensitivity to changes in the price of recreation and home consumption goods. Our estimated wage ISE (0.9) implies that, at average time allocation values, female labor force participants will increase their annual labor supply by around 14 hours when offered a 1% increase in the wage rate. Approximately 7 hours of this increase will be from less time spent on leisure and the other 7 from less time spent on home production. Annual labor supply is reduced by around 7 hours when the price of home consumption goods rises by 1%, this extra time being almost entirely devoted to home production. An elasticity of substitution between time and goods in home production of approximately 2 is also estimated.

► We model the intertemporal allocation of activities under uncertainty.
► We estimate a three-activity system for female labor force participants.
► A 1% increase in the wage rate increases annual labor supply by around 14 hours.
► Approximately 7 hours are from less leisure and 7 from less home production.
► Time devoted to home production increases when home consumption goods prices rise.