Labor Supply and Optimization Frictions: Evidence from the Danish student labor market

Publikation: Working paperForskning


In this paper I investigate the nature of optimization frictions by studying the labor market of Danish students. This particular labor market is an interesting case study as it features a range of special institutional settings that affect students’ incentive to earn income and comparing outcomes across these setting effectively allow you to distinguish between different types of frictions. I find that the considered labor market is significantly affected by optimizations frictions, which masks the bunching at kink points normally associated with a positive labor supply elasticity under standard theory. More concretely I find the dominate optimization friction to be individuals’ inattention about their earnings during the year, while real adjustment cost and gradual learning appears to be of less importance.
UdgiverEconomic Policy Research Unit. Department of Economics, University of Copenhagen
ISBN (Elektronisk)0908‐7745
StatusUdgivet - dec. 2014
NavnEPRU Working Paper Series

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