In estimating the Frisch elasticity – i.e., the elasticity of substitution between worked hours and real wages, holding constant the marginal utility of wealth – for the Mercosur countries, this article finds a strong heterogeneity. It argues that severe liquidity constraints are the main reason for the negative estimates and that the heterogeneity is the outcome of differences in many relevant economic dimensions – ranging from sectorial specialisation to welfare-state provisions and labour-market specificities. The diversity of Frisch elasticities calls for the development of a cross-country (rather than a within-country) policy approach, since they crucially affect the dynamics of the business cycle, the synchronisation of which is a step prior to the design of macro-convergence policies in the Mercosur context."> In estimating the Frisch elasticity – i.e., the elasticity of substitution between worked hours and real wages, holding constant the marginal utility of wealth – for the Mercosur countries, this article finds a strong heterogeneity. It argues that severe liquidity constraints are the main reason for the negative estimates and that the heterogeneity is the outcome of differences in many relevant economic dimensions – ranging from sectorial specialisation to welfare-state provisions and labour-market specificities. The diversity of Frisch elasticities calls for the development of a cross-country (rather than a within-country) policy approach, since they crucially affect the dynamics of the business cycle, the synchronisation of which is a step prior to the design of macro-convergence policies in the Mercosur context."> In estimating the Frisch elasticity – i.e., the elasticity of substitution between worked hours and real wages, holding constant the marginal utility of wealth – for the Mercos">
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The Frisch Elasticity in the Mercosur Countries: A Pseudo-Panel Approach

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  • Roberto González
  • Hector Sala
Abstract
type="main"> In estimating the Frisch elasticity – i.e., the elasticity of substitution between worked hours and real wages, holding constant the marginal utility of wealth – for the Mercosur countries, this article finds a strong heterogeneity. It argues that severe liquidity constraints are the main reason for the negative estimates and that the heterogeneity is the outcome of differences in many relevant economic dimensions – ranging from sectorial specialisation to welfare-state provisions and labour-market specificities. The diversity of Frisch elasticities calls for the development of a cross-country (rather than a within-country) policy approach, since they crucially affect the dynamics of the business cycle, the synchronisation of which is a step prior to the design of macro-convergence policies in the Mercosur context.

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  • Roberto González & Hector Sala, 2015. "The Frisch Elasticity in the Mercosur Countries: A Pseudo-Panel Approach," Development Policy Review, Overseas Development Institute, vol. 33(1), pages 107-131, January.
  • Handle: RePEc:bla:devpol:v:33:y:2015:i:1:p:107-131
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    1. Sosa-Padilla, César, 2018. "Sovereign defaults and banking crises," Journal of Monetary Economics, Elsevier, vol. 99(C), pages 88-105.
    2. Nikita Céspedes Reynaga & Silvio Rendon, 2012. "The Frisch Elasticity in Labor Markets with high Job Turnover," Department of Economics Working Papers 12-13, Stony Brook University, Department of Economics.
    3. Zamnius, Alexey & Polbin, Andrey, 2021. "Estimating intertemporal elasticity of substitution of labor supply for married women in Russia," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 64, pages 23-48.

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    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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