Labor Supply Adjustment Research Articles

Part-time employment opportunities and labour supply of older workers

I investigate the links between the part-time employment opportunities and the labour supply adjustments of older workers, focusing on both the extensive and intensive margins. Utilising data for 30 European countries in the period from 2011 to 2021, I construct a quasi-panel that compares individuals aged 60–64 with those aged 55–59 from five years prior. I find that the employees in sectors offering more part-time jobs are more likely to stay in employment, and that the total hours worked by these employees decrease at a slower rate than those of the employees in sectors imposing more rigid hours constraints. These results are most pronounced for women in manual types of occupation, but are significant across almost all examined worker categories. The positive relationship between the part-time employment opportunities and the total hours worked of older employees is robust to various modifications in the empirical setup. However, this relationship is heterogeneous across countries, and is least pronounced in the countries with a high availability of part-time jobs.

Job Loss and Household Labor Supply Adjustments in Developing Countries: Evidence from Argentina

Abstract Using longitudinal data for Argentina, this paper estimates the labor supply reaction of spouses and children, as well as the interactions between them, following the job loss of their husband or father. The findings show that job loss by the household head has a positive and significant impact on the labor supply of other household members. However, it increases the likelihood of spouses to switch to informal and downgraded employment, and of children to drop out from education. While effects are stronger among vulnerable households, coverage of social security does not provide enough support in coping with unemployment shocks. Mothers’ labor participation, however, may allow their daughters to continue their education.

Natural circumstances and farm labor supply adjustment: the response of the farm labor supply to permanent and transitory natural events

Natural circumstances and farm labor supply adjustment: the response of the farm labor supply to permanent and transitory natural events

Income Diversification and Income Inequality: Household Responses to the 2013 Floods in Pakistan

In this paper we investigate the economic response of rural households to the 2013 floods in Pakistan. The case study illustrates the important roles of labor supply adjustments and income diversification in coping with climate-related risks. Using detailed household panel data that were collected before and after the 2013 floods, we find that the exposure to flood results in lower participation in farm activities. The overall effects are decreased diversification in the sources of income and ambiguous reduction in inequality which is associated with overall declines in incomes. These changes could be locked in if affected households do not have sufficient assets to resume farming. The results suggest intervention points for public policy, related to labor mobility and access to capital.

Job Loss and Household Labor Supply Adjustments in Developing Countries: Evidence From Argentina

Fil: Ciaschi, Matias Omar. Consejo Nacional de Investigaciones Cientificas y Tecnicas. Centro Cientifico Tecnologico Conicet - La Plata; Argentina. Universidad Nacional de La Plata. Facultad de Ciencias Economicas. Departamento de Ciencias Economicas. Centro de Estudios Distributivos Laborales y Sociales; Argentina. Universidad Nacional de la Plata. Facultad de Cs.economicas. Instituto de Investigaciones Economicas.; Argentina

Losing in a boom: Long-term consequences of a local economic shock for female labour market outcomes

This article examines the long-term labour market consequences of a positive and large-scale economic shock, the discovery of oil and gas in Norway. Using longitudinal data on the entire Norwegian population, we find that the shock increases male income by around 7%, while reducing female income by up to 14%. Although married women experience the largest income losses, they also have higher household income, revealing the importance of labour supply adjustments within households. While these income shifts persist for two decades, the subsequent generation of female workers are able to close the income gap with their peers in areas less affected by the oil boom.

Removing the wall around welfare: What do We learn from A8 immigrants in the UK?

SUMMARY A relevant question within the growing debate on immigration policy concerns the impact of granting immigrants free access to the welfare system. I analyse the case of the European 2004 Accession (A8) countries and the lift of the temporary limitations to benefit eligibility that citizens from these countries faced until April 2011 in the UK. When the restrictions are relaxed A8 immigrants claim more benefits, but labour supply adjustments occur mainly for those who are more in need for assistance, namely women and the less educated, especially in the presence of children. Moreover, I provide evidence on two potential indirect effects. First, my results support the absence of magnet effects, as arrivals do not change from before to after the change in eligibility rules. Second, I show that granting immigrants access to welfare does not change the composition of the incoming flows.

Reprint of: The pros and cons of sick pay schemes: Testing for contagious presenteeism and noncontagious absenteeism behavior

This paper provides an analytical framework and uses data from the U.S. and Germany to test for the existence of contagious presenteeism and negative externalities in sick leave insurance. The first part exploits high-frequency Google Flu data and the staggered implementation of U.S. sick pay mandates to show, using a reduced-form framework, that population-level influenza-like disease rates decrease after employees gain access to paid sick leave. Next, a simple theoretical framework provides evidence on the underlying behavioral labor supply mechanisms. The model theoretically decomposes overall labor supply adjustments (“moral hazard”) into contagious presenteeism and noncontagious absenteeism behavior and derives testable conditions. The last part illustrates how to implement the model exploiting a German sick pay reform and administrative industry-level data on certified sick leave by diagnosis. The empirical test finds that the labor supply elasticity for contagious diseases is significantly smaller than for noncontagious diseases. Under the identifying assumptions of the model, this finding provides additional indirect evidence for the existence of contagious presenteeism.

The pros and cons of sick pay schemes: Testing for contagious presenteeism and noncontagious absenteeism behavior

This paper provides an analytical framework and uses data from the U.S. and Germany to test for the existence of contagious presenteeism and negative externalities in sick leave insurance. The first part exploits high-frequency Google Flu data and the staggered implementation of U.S. sick pay mandates to show, using a reduced-form framework, that population-level influenza-like disease rates decrease after employees gain access to paid sick leave. Next, a simple theoretical framework provides evidence on the underlying behavioral labor supply mechanisms. The model theoretically decomposes overall labor supply adjustments (“moral hazard”) into contagious presenteeism and noncontagious absenteeism behavior and derives testable conditions. The last part illustrates how to implement the model exploiting a German sick pay reform and administrative industry-level data on certified sick leave by diagnosis. The empirical test finds that the labor supply elasticity for contagious diseases is significantly smaller than for noncontagious diseases. Under the identifying assumptions of the model, this finding provides additional indirect evidence for the existence of contagious presenteeism.

Couples' Labour Supply Responses to Job Loss: Growth and Recession Compared

We examine whether couples in the UK increase labour supply to cushion the fall in earnings from a job loss, comparing periods of growth and recession. We consider both male and female earners and various dimensions of labour supply adjustment. We find evidence of labour supply reactions, but they can be negative as well as positive, particularly at the extensive margin. During the recession, household reactions are either unchanged or couples increase their labour market attachment, with bigger positive reactions and smaller negative ones. People do not react in advance of job losses, suggesting that unemployment is a surprise.

The Fiscal Effects of Work-related Tax Expenditures in Europe

This article examines the fiscal impact, and the associated welfare cost, of marginal reforms to work-related tax relief in five European countries. We combine a model of labor supply with microsimulation results to capture the interaction between the specific tax incentive and other provisions of the tax-benefit system along the entire earnings distribution. We find that changes in labor supply decisions—both at the extensive and at the intensive margin—significantly affect the revenue gain from the simulated reforms. Our results suggest that at least one-fourth of the extra tax revenues collected through a reduction in work-related tax incentives is washed away following labor supply adjustment, notably due to lower participation by individuals most at risk of exclusion. In some instances, the erosion of the initial revenue gain becomes substantial. The welfare effect of contractions to these tax schemes could be far from negligible.

Shifting Taxes from Labor to Consumption: More Employment and more Inequality?

This paper investigates the effect of shifting taxes from labor income to consumption on labor supply and the distribution of income in Germany. We simulate stepwise increases in the value‐added tax (VAT) rate, which are compensated by revenue‐neutral reductions in income‐related taxes. We differentiate between the personal income tax (PIT) and social security contributions (SSC). Based on a dual data base and a microsimulation model of household labor supply behavior, we find a regressive impact of such a tax shift in the short run. When accounting for labor supply adjustments, the adverse distributional impact persists for PIT reductions, while the overall effects on inequality and progressivity become lower when payroll taxes are reduced. This is partly due to increases in aggregate labor supply, resulting from higher work incentives.

Dynamic labor supply adjustment with bias correction

I estimate a dynamic fixed effects hours equation for prime-age men with bias correction. Studies using household data typically find a weak response in hours of work to changes in the wage. This paper finds that rather than indicating a small elasticity of intertemporal substitution, the weak dependence of hours on wages is the result of delayed adjustment. The coefficient on the lagged dependent variable is found to be between 0.31 and 0.33, which suggests that it takes 1.5 years for an individual in the sample to adjust hours of work to a change in the wage or other preference variables, an important consideration in policy evaluation. Failure to correct for incidental parameter bias leads to underestimating this effect by more than 15%. Time-varying endogeneity of the wage is handled using a control function approach.

Consumption and Leisure: The Welfare Impact of Migration on Family Left Behind

This paper examines the effect of international migration on the welfare of family members left behind at the origin. Previous literature has produced inconclusive evidence, with some studies suggesting that migration reduces income poverty while others show that non-migrants bear a larger work burden to compensate for the loss of migrants' earnings. This paper provides a new unified framework that generates testable predictions of whether migration increases non-migrants' welfare in terms of both consumption and leisure time. Drawing on household panel data in rural Mexico, I find that migration increases non-migrants' consumption, but that this consumption gain cannot be explained by labor supply adjustments. Migration improves left-behinds' welfare through two different channels: (i) migrants' remittances exceed their forgone income contribution to the origin household; and (ii) the out-migration of a farmer increases the marginal productivity of agricultural labor for those left behind in the farm.

Commuting and timing of retirement

Interregional commuting is an important feature of labour supply and regional labour market adjustment. In this study, we examine the effect of long-distance commuting (LDC) on timing of retirement ...

The Pros and Cons of Sick Pay Schemes: Testing for Contagious Presenteeism and Shirking Behavior

This paper proposes a test for the existence and degree of contagious presenteeism and negative externalities in sickness insurance schemes. First, we theoretically decompose moral hazard into shirking and contagious presenteeism behavior and derive testable conditions. Then, we implement the test exploiting German sick pay reforms and administrative industry-level data on certified sick leave by diagnoses. The labor supply adjustment for contagious diseases is significantly smaller than for non-contagious diseases. Lastly, using Google Flu data and the staggered implementation of US sick leave reforms, we show that flu rates decrease after employees gain access to paid sick leave.

Shifting Taxes from Labor to Consumption: More Employment and More Inequality

This paper investigates the effect of shifting taxes from labor income to consumption on labor supply and the distribution of income in Germany. We simulate stepwise increases in the value-added tax (VAT) rate, which are compensated by revenue-neutral reductions in income-related taxes. We differentiate between the personal income tax (PIT) and social security contributions (SSC). Based on a dual data base and a microsimulation model of household labor supply behavior, we find a regressive impact of such a tax shift in the short run. When accounting for labor supply adjustments, the adverse distributional impact persists for PIT reductions, while the overall effects on inequality and progressivity become lower when payroll taxes are reduced. This is partly due to increases in aggregate labor supply, resulting from higher work incentives.

Taxation and labour supply: Evidence from a representative population survey

We study how taxation influences labour supply using a specifically designed representative survey of the German population. First, we investigate whether taxes generally matter for the labour supply decisions of our respondents. Around 41 per cent report taking taxes into consideration, implying that the majority of the German population is unresponsive to taxation. Second, we look at self-reported labour supply adjustments following a recently enacted payroll tax change. Only around 12 per cent of our respondents report an actual labour supply response, but we find evidence of an income, as well as a substitution, effect of the tax change. Our conclusion is that the effects of taxes on labour supply in Germany are likely small. We analyse the correlation with economic and socio-demographic variables and find that the self-employed are relatively more sensitive to taxation and that low interest rates reduce incentives for expanding the labour supply.

Taxation and Labour Supply: Evidence from a Representative Population Survey

We study the influence of taxation on labour supply using a specifically designed representative survey of the German population. First, we investigate whether taxes generally matter for the labour supply decisions of our respondents. Around 41 per cent report taking taxes into consideration, which implies that the majority of the German population appears unresponsive to taxation. Second, we look at self-reported labour supply adjustments following a recently enacted payroll tax change. Only around 12 per cent of all respondents report an actual labour supply response, but we find evidence of an income, as well as a substitution, effect of the tax change. Our conclusion is that effects of taxes on labour supply in Germany are likely small. We analyse the correlation with economic and socio-demographic variables, and find that the self-employed are relatively more sensitive to taxation and that low interest rates reduce incentives for an expansion of the labour supply.

Dynamic Labor Supply Adjustment with Bias Correction

I estimate a dynamic fixed-effects hours equation for prime-age men with bias correction. Studies using household data typically find a weak response in hours of work to changes in the wage. This paper finds that, rather than indicating a small elasticity of intertemporal substitution, the weak dependence of hours on wages is the result of delayed adjustment. The coefficient on the lagged dependent variable is found to be between 0.31 and 0.33, which suggests that it takes 1.5 years for an individual in the sample to adjust hours of work to a change in the wage or other preference variables, an important consideration in policy evaluation. Failure to correct for incidental parameter bias leads to underestimating this effect by more than 15 percent. Time-varying endogeneity of the wage is handled using a control-function approach.