Sarah Lein, University of Basel

"Labor supply elasticities: Evidence from cross-border workers"

Abstract

This paper studies how workers adjust their labour supply in response to a permanent increase in real wages. We exploit a sharp appreciation of the Swiss franc that raised the real income of cross border workers who earn wages in CHF but consume in EUR by roughly 10 percent. Using detailed administrative micro data, we compare these workers to otherwise similar employees within the same firm, occupation, and observable characteristics who both earn and consume in CHF. This within firm identification strategy isolates the effect of the exchange rate induced real wage change from confounding factors. We document that cross border workers adjust their labour supply significantly relative to their Swiss resident counterparts, providing direct evidence on labour supply elasticities with respect to permanent real wage shocks. Our findings contribute to the understanding of income effects and the role of consumption currency in shaping labour market behaviour.

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