Estimates of labour supply elasticities for Transport Analysis and other guidance

• Updated Labour Supply Elasticity Estimates: The report provides new estimates of labour supply elasticities (LSEs) in the UK from 1997 to 2024, informing the Department for Transport's (DfT) employment impact assessments of transport investments.
• Recommendation to Increase Extensive Margin LSE: The analysis suggests that the current 0.10 extensive margin LSE used by DfT is an underestimate and should be updated to approximately 0.60, reflecting long-term employment responses to changes in transport infrastructure. The 0.60 estimate is based on individual-level data, while we infer the 0.10 estimate had been based on regionally aggregated data.
• Declining Intensive Margin LSE: The responsiveness of existing workers to wage changes (intensive margin LSE) has declined over time, from around 0.20 in 1997 to 0.12 in 2024.
• Potential Impact of Declining Response Rates: The response rates for the UK Labour Force Survey (LFS) have dropped sharply, particularly since 2020, raising concerns about data reliability. The report cross-validates findings using the UK Household Longitudinal Survey (HLS) data to mitigate potential LFS response rate biases.
• Policy Implications and Future Recommendations: The findings suggest that transport infrastructure investments have a greater impact on employment than previously estimated, supporting higher LSE values in policy assessments. Regular updates to LSE estimates using high-quality data are recommended for continued accuracy in economic modelling.