Ruhr Economic Papers

Ruhr Economic Papers #566

Does Height Affect Labor Supply? Implications of Product Variety and Caloric Needs

by Martin Micheli

RWI, 07/2015, 36 S./p., 8 Euro, ISBN 978-3-86788-652-9 DOI: 10.4419/86788652

download

Abstract

The positive correlation between hourly wages and height, which results in higher labor supply of tall individuals, is well-documented in the literature. Accepting the utilitarian perspective and assuming that height does not affect utility implies that linking income taxes to height is welfare improving. This paper argues that height might not only affect an individual’s income but also utility from consumption. Higher caloric needs of tall individuals should result in higher consumption expenditures for food to satisfy these needs. Size specific products should result in lower product variety for sizes where aggregate demand is low, typically sizes for individuals in the tails of the height distribution. Introducing these two channels into a household’s maximization problem we derive a labor supply equation that allows for an empirical test for the relevance of these two channels. We use the German Socio-Economic Panel Study to estimate this labor supply equation. Caloric needs do not have a significant effect on labor supply. Product choice, on the other hand, does increase labor supply significantly. This implies that purely focusing on income might not be optimal under the utilitarian framework for tax analysis.

JEL-Classification: D11, D12, H21, J22

Keywords: Height; labor supply; utility; product variety; optimal taxation

Up