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The Own-Wage Elasticity of Labor Demand: A Meta-Regression Analysis
by Andreas Lichter, Andreas Peichl, Sebastian Siegloch
(February 2014)
revised version published in: European Economic Review, 2015, 80, 94-119

Abstract:
Firms' labor demand responses to wage changes are of key interest in empirical research and policy analysis. However, despite extensive research, estimates of labor demand elasticities remain subject to considerable heterogeneity. In this paper, we conduct a comprehensive meta-regression analysis to re-assess the empirical literature on labor demand elasticities. Building on 942 elasticity estimates from 105 different studies, we identify sources of variation in the absolute value of this elasticity. Heterogeneity due to the theoretical and empirical specification of the labor demand model, different datasets used or sectors and countries considered explains more than 80% of the variation in the estimates. We further find substantial evidence for the presence of publication selection bias, as estimates of the own-wage elasticity of labor demand are upwardly inflated.
Text: See Discussion Paper No. 7958