Disutility Of Work Research Articles

Hours risk and wage risk: repercussions over the life cycle*

AbstractWe decompose earnings risk into contributions from hours and wage shocks. To distinguish between hours shocks, modeled as innovations to the marginal disutility of work, and labor supply reactions to wage shocks, we formulate a life‐cycle model of consumption and labor supply. For estimation, we use data on married American men from the Panel Study of Income Dynamics. Permanent wage shocks explain 31 percent of total risk, permanent hours shocks 21 percent. Progressive taxation attenuates cross‐sectional earnings risk, but its life‐cycle insurance impact is much smaller. At the mean, a one‐standard‐deviation hours shock raises lifetime income by 11 percent, a wage shock by 13 percent.

Technology deskills jobs, reduces the disutility of work, particularly among the low-skilled

Technology deskills jobs, reduces the disutility of work, particularly among the low-skilled

Optimal sickness benefits in a principal–agent model

This paper studies the optimal design of sickness benefits in a repeated principal–agent model, where the fraudsters are not observed by the principal. Sickness compensation protects workers against the income fluctuations implied by the risk of illness and its provision is limited by the presence of fraudsters using this protection to temporarily adjust their labour supply. We show that the slope of the optimal contract depends on the dynamics of the rate of fraudsters over time. When the duration of temporary shocks on the disutility of work is shorter than the average duration of diseases, the sickness benefits must increase over time. In addition, A tax dependent on the length of the sick leave makes it possible to minimise the cost for a given promise-keeping constraint. Contrary to intuition, this tax must be decreasing because the necessity to penalise the shortest sick leave to deter agents from cheating.

Inferring Inequality With Home Production

We revisit the causes, welfare consequences, and policy implications of the dispersion in households' labor market outcomes using a model with uninsurable risk, incomplete asset markets, and home production. Allowing households to be heterogeneous in both their disutility of home work and their home production efficiency, we find that home production amplifies welfare‐based differences, meaning that inequality in standards of living is larger than we thought. We infer significant home production efficiency differences across households because hours working at home do not covary with consumption and wages in the cross section of households. Heterogeneity in home production efficiency is essential for inequality, as home production would not amplify inequality if differences at home only reflected heterogeneity in disutility of work.

Social Welfare Effects of Progressive Income Taxation under Increasing Inequality

During the 2008 economic crisis, labour market inactivity, unemployment and work informality in Serbia rose substantially, triggering a salient increase in Gini-measured inequality (by 4.3 pp), while income tax progressivity remained very low. Using the micro-simulation and utility function estimation techniques on 2007 and 2012 household survey data for Serbia, we compare the social welfare effects of a hypothetical shift from flat to progressive taxation, before and after the crisis. We find that a shift from flat to progressive tax and the consequent behavioural response lead to a reduction in inequality, a rise in total labour supply and an increase in the overall social welfare in both years. Although the decrease in inequality is higher in 2012, the overall welfare effects are slightly larger in 2007, due to the stronger labour supply response and the stronger disutility of work found in the latter year. This may suggest that a rise in inequality does not per se create a stronger case for progressive taxation, as the welfare effects are considerably driven by the structure of income-leisure preferences.

Optimal progressivity with age-dependent taxation

This paper studies optimal taxation of earnings when the degree of tax progressivity is allowed to vary with age. The setting is an overlapping-generations model that incorporates irreversible skill investment, flexible labor supply, ex ante heterogeneity in the disutility of work and the cost of skill acquisition, partially insurable wage risk, and a life cycle productivity profile. An analytically tractable version of the model without intertemporal trade is used to characterize and quantify the salient trade-offs in tax design. The key results are that progressivity should be U-shaped in age and that the average marginal tax rate should be increasing and concave in age. These findings are confirmed in a version of the model with borrowing and saving that we solve numerically.

Hours Risk and Wage Risk: Repercussions over the Life-Cycle

We decompose permanent earnings risk into contributions from hours and wage shocks. To distinguish between hours shocks, modeled as innovations to the marginal disutility of work, and labor supply reactions to wage shocks we formulate a life-cycle model of consumption and labor supply. Both permanent wage and hours shocks are important to explain earnings risk, but wage shocks have greater relevance. Progressive taxation strongly attenuates cross-sectional earnings risk, its life-cycle insurance impact is much smaller. At the mean, a positive hours shock of one standard deviation raises life-time income by 10%, while a similar wage shock raises it by 12%.

Understanding joint retirement

Evidence from different sources shows that spouses’ retirement decisions are correlated. Retirement policies affecting individuals in couples are therefore also likely to affect behavior of their spouses. It is therefore important to account for joint features in modeling retirement. This paper studies a structural collective model of labor supply and retirement of both partners in a couple with interdependent preferences, imperfect knowledge of preferences of the spouse, and subjective expectations about the future. We propose a novel method to estimate preferences and the intra-household bargaining process, which relies on stated preferences data collected in the Health and Retirement Study. Respondents were asked to choose between hypothetical retirement trajectories describing the retirement ages and replacement rates of both spouses from three perspectives: considering their own preferences only, the preferences of their spouse only, or the most likely decision for the household. With these data, all model parameters are identified and potential sources of joint retirement can be disentangled. Our results suggest that males misperceive their wives’ preferences, overestimating their disutility of work. Our estimates correct for this. We find strong positive correlations between preferences for joint leisure (leisure complementarity) of the two partners. Counterfactual simulations with stylized retirement paths suggest that the leisure complementarities explain a substantial part of joint retirement, much more than correlation in unobserved heterogeneity or potential wage rates.

Fairness-Adjusted Laffer Curve: Strategy versus Direct Method

This paper reports results from controlled laboratory experiments on the Laffer curve and explores the productivity differences under the strategy method and the direct method. The data collected in Pakistan show no significant productivity difference across the two methods. The paper argues that the Laffer curve is not the result of a simple leisure—income tradeoff; the disutility of work and perceived unfairness of the tax imposed also influence the work decisions. A behavioral model that incorporates these factors induces a “fairness adjusted” Laffer curve with the negative relationship between tax rate and tax revenue showing up after 54% tax rate.

Compensating Work Disutility With Increased Consumption

Compensating Work Disutility With Increased Consumption

Optimal choice of health and retirement in a life-cycle model

We examine within a life-cycle model the simultaneous choice of health care and retirement (together with consumption). Health tends to have an impact on retirement through morbidity, determining earnings and the disutility of work, and through longevity, determining the need to accumulate retirement wealth. Conversely, the age of retirement drives the demand for health care through the value of survival and the value of morbidity reductions. We characterise the optimal relationship between health expenditure and retirement and apply our model to analyse the effects of moral hazard in the annuity market. While moral hazard always induces excessive health investments and an excessive duration of working life, it also triggers an excessive level of consumption if the impact of health on the disutility of work is sufficiently large. We examine a transfer scheme and mandatory retirement as policies towards curtailing moral hazard. Numerical analysis illustrates the role of moral hazard in shaping the life-cycle allocation.

Social Security and Retirement in Uruguay

We estimate a structural life-cycle model for retirement behaviour using work history records of the main Uruguayan pension programme. The estimated coefficient of relative risk aversion is around 1.5 and the estimated discount rate is about 1.8 per cent per annum. The marginal disutility of work increases with age and is larger for women than men, and for private than public employees. Simulations show a very low impact of the 1995 pension reform on retirement ages. Many individuals in this population respond little to economic incentives and some individuals would advance rather than postpone retirement after the reform.

Developing an understanding of meaningful work in economics: the case for a heterodox economics of work

The idea that work has meaning and is meaningful beyond its contribution to consumption has been largely absent from mainstream economics. This paper gives reasons for why mainstream economics has neglected the idea of meaningful work. It identifies the idea of the disutility of work, the assumption of free choice on the part of workers and the use of a formal and individualistic method as key constraints on the ability of mainstream economics to incorporate the idea of meaningful work. It also addresses the contribution of happiness economics and shows how it is unable to encompass the idea of meaningful work. Ideas on work from heterodox economics are then discussed. These ideas provide essential insight and inspiration for the incorporation of the idea of meaningful work into the economics of work. In all respects, the paper seeks to contribute towards the development and promotion of a heterodox economics of work that has the goal of meaningful work at its centre.

Conceptualising Work in Economics: Negating a Disutility

SummaryThis paper starts from the premise that economics has offered a one‐sided conception of work. Standard economic theory, specifically, has defined work as a means to income and consumption; it has failed to grasp the importance of work as an end in its own right. The aim of the paper is to develop an alternative conception of work that captures the formative impacts of work on the well‐being of workers. The paper firstly outlines and criticises the different definitions of the disutility of work found in economics. It then offers a critical assessment of happiness research on work. The idea that the effects of work on worker well‐being can be captured by job satisfaction data and that the importance of work can be reduced to a subjective feeling in the heads of individual workers – two key aspects of happiness research – are challenged. The final part of the paper develops novel ideas about how the economics of work should progress in the future. The section proposes a needs‐based conception of work and then uses this conception to make the case for collective intervention aimed at enhancing the quality of work life.

Optimal Income Taxation and Risk: The Extensive-Margin Case

The optimal income tax structure is studied in a setting in which workers make discrete labor market decisions and earnings are uncertain. Workers differ continuously along a single dimension that reflects their skills as well as their disutility of work in different jobs. A discrete number of jobs-types are available in perfectly elastic supply. Each job yields a stochastic distribution of wages, where the distribution differs among skill-types. The amount of work in each job is fixed, so there is no intensive labor-supply decision and wages reflect earnings. Expected wages for a given job-type are higher for higher-skilled workers. Workers first choose a job based on the distribution of wages they expect to earn. Once jobs are chosen, wages are revealed and workers decide whether to accept the job or become voluntarily unemployed. Each job-type is associated with a distribution of wages, and the same wage will be paid by more than one job-type. Under reasonable conditions, workers segment themselves by skill levels into jobs. We analyze the optimal income tax structure given these two margins of decision-making, job choice and participation. The optimal tax will reflect insurance (since earnings are uncertain when jobs are chosen), redistribution (since persons of higher skills earn more), and efficiency (since taxes affect both job choice and participation).

The Value of Leisure or Disutility of Work: Wage Dispersion in a Model of Search with Endogenous Effort

Wage dispersion is generated in a sequential search environment through heterogeneity in firm productivity along with an individual wage-effort trade-off. For a given degree of TFP dispersion, the framework can generate any amount of wage dispersion. Calibrated to generate realistic gains from trade, it is able to generate the kind of wage dispersion observed in data.

The (un)importance of unemployment fluctuations for the welfare cost of business cycles

This paper studies the cost of business cycles within a real business cycle model with search and matching frictions in the labor market. We endogenously link both the cyclical fluctuations and the mean level of unemployment to the aggregate business cycle risk. The key result of the paper is that business cycles are costly: fluctuations over the cycle induce a higher average unemployment rate since employment is nonlinear in the job-finding rate and the past unemployment rate. We show this analytically for a special case of the model. We then calibrate the model to U.S. data. For the calibrated model, too, business cycles cause higher average unemployment; the welfare cost of business cycles can easily be an order of magnitude larger than Lucas's (1987) estimate. The cost of business cycles is the higher the lower the value of nonemployment is, or, equivalently, the lower is the disutility of work. The ensuing cost of business cycles rises further when workers' skills depreciate during unemployment.

Private Wealth and Planned Early Retirement: A Panel Data Analysis for the Netherlands 1994-2009

We study the causal relation between private wealth and retirement age. We propose two estimation strategies based on expected retirement age. The outcome variable is observed repeatedly over time. We correct first for the unobserved heterogeneity in the disutility of work by using panel data techniques. Next, we exploit information on expected wealth accumulation in order to identify the unexpected component in wealth accumulation. In line with the literature we find a small but significant effect of private wealth on planned early retirement.

Private Wealth and Planned Early Retirement: A Panel Data Analysis for the Netherlands, 1994-2009

We study the causal relation between private wealth and retirement age. We propose two estimation strategies based on expected retirement age. The outcome variable is observed repeatedly over time. We correct first for the unobserved heterogeneity in the disutility of work by using panel data techniques. Next, we exploit information on expected wealth accumulation in order to identify the unexpected component in wealth accumulation. In line with the literature we find a small but significant effect of private wealth on planned early retirement.

Estimer la valeur monétaire de la qualité d'un emploi

Résumé S’appuyant sur une approche par les « préférences exprimées » au lieu des « préférences révélées », cet article cherche à estimer une valeur monétaire de la qualité des emplois occupés par les salariés en fin de carrière. Il part du constat que ceux occupant des emplois de mauvaise qualité sont moins disposés que les autres à poursuivre leur activité professionnelle : ils accepteraient éventuellement de la prolonger à condition de leur proposer une augmentation plus importante de leur pension de retraite. C’est ce principe de contrepartie financière à la désutilité du travail qui sert de fondement à la monétarisation de la qualité des emplois proposée ici. Exploitant les données d’une enquête originale sur les intentions de départ à la retraite d’un échantillon de salariés âges de 54 ans ou plus et travaillant dans le secteur privé, l’article donne une estimation de cet équivalent monétaire qui montre que l’effet de la qualité de l’emploi sur la propension à poursuivre son activité professionnelle est loin d’être négligeable.