Occupational Preferences Heterogeneity in Labor Supply: Evidence from the PSID

Abstract

Empirical research generally finds that wage fluctuations lead to only modest adjustments in hours worked. However, individuals experiencing economic hardship often increase their labor supply when wages decline, exhibiting negative labor supply elasticity, a phenomenon documented in both less industrialized economies and certain high-income countries. Using micro-level data from the Panel Study of Income Dynamics (PSID) spanning 1968 to 2017, this study investigates heterogeneity in labor supply elasticity across occupations and industries, with particular attention to the influence of work-environment characteristics and non-pecuniary job attributes. Our findings reveal substantial variation in Frisch elasticity that is systematically associated with occupational characteristics and individual work preferences. Workers in construction, extraction, production, and transportation occupations display relatively high labor supply elasticity, indicating greater responsiveness to wage fluctuations and a stronger propensity to substitute leisure for labor. In contrast, individuals employed in the arts, sports, and social services exhibit lower elasticity estimates, consistent with the hypothesis that these occupations provide higher intrinsic satisfaction or other non-pecuniary returns, thereby reducing sensitivity to wage changes. We further observe cross-state variation in Frisch elasticities that reflect underlying institutional differences in labor market regulation, unionization, and employment protection. Overall, the evidence highlights the importance of occupational heterogeneity and non-pecuniary job characteristics in shaping labor supply behavior at the intensive margin. These results contribute to a deeper understanding of the mechanisms underlying labor supply responsiveness and underscore the need to account for non-monetary job attributes when evaluating labor market dynamics.