To Work or Not to Work?

This paper provides a microeconometric analysis of extensive margin labour supply elasticities in Slovakia. We find that a one percent increase in net wage increases the probability of economic activity by 0.263 percentage points. Taking into account tax and transfer system details valid in 2009-2011, a one percent increase in transfers decreases the semi-elasticity of labour force participation by 0.04 percentage points. These results are broadly in line with the elasticities usually reported in the literature. Our results show that low-skilled, females and the elderly are the groups that are particularly responsive to changes in taxes and transfers. Labour market policies aimed to boost employment should concentrate on increasing marginal gains to work, especially for low-educated individuals and women.
Keywords: labour supply elasticity, extensive margin, Heckman model, probit
JEL classification: H31, H53, I38, J21

Revised version available. 

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