Tax effects on job search, training, and work effort

Abstract

The conventional economic model of labour supply is extended to include job-search activity or off-the-job training. For most tax and transfer policies, the slope of the labour-supply schedule affects the direction of search incentives relative to laissez faire. Only the income subsidy exerts unambiguously negative effects on search activity. A proportional income tax offers greater search incentives than an equal-revenue progressive income tax. The positive marginal subsidy range of an earnings subsidy evokes more search than an equal-transfer wage or income subsidy, but ranking of the latter two programs is ambiguous. Work and search effects are combined in an analysis of the impact of each policy on workers' gross market earnings.