An Empirical Study of the Effect of Liquidity and Consumption Commitment Constraints on lntertemporal Labor Supply

Abstract

This article presents empirical evidence with respect to two constraints on workers' intertemporal labor supply: the liquidity constraint which prevents workers from borrowing against future consumption to accommodate wage changes; and consumption commitments which, due to transaction costs. cannot be changed in the short-run to accommodate wage changes. The author reports tentative evidence of a modest impediment to intertemporal labor supply due to the liquidity constraint. The author also estimates the intertemporal substitution elasticity for workers with different levels of consumption commitments and determines that such commitments substantially reduce a worker's intertemporal substitution elasticity. (J20. J22)