Household Labor Supply Elasticities: Evidence from Cross-Border Workers

After the Swiss National Bank unexpectedly abandoned a minimum exchange rate policy in 2015, the Swiss franc appreciated by more than 10 percent against the Euro. The appreciation implied a sudden increase in real wage incomes for over 40,000 German cross-border commuters into Switzerland. We use this exchange rate shock to estimate the own-wage and cross-spouse labor supply elasticities from administrative tax returns data and find a 5% drop in taxable income for cross-border workers and a 1.5% reduction in taxable income for cross-border worker spouses. We provide evidence for intensive margin adjustments in hours worked consistent with these estimates.

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