Labor Supply Function Research Articles

Employment after childbearing in post-war Britain: cohort-study evidence on contrasts within and across generations.

"In post-war Britain, mothers have been returning to the labour-market after diminishing breaks around childbearing. Longitudinal data, mainly from two generations in the National Survey of the 1946 cohort, are used to describe and help explain the trend. Class and regional differences diminish over time, both in simple two-way analyses and in multiple (hazard) regression. Women's education and occupational attainments retain a positive effect on their chances of entering employment over the two generations. The weakening of class differentials is taken to signal a reduction in the income effect of a shifting labour-supply function."

Reassessing the Male-Female Wage Differential: A Fixed Effects Approach

The vast literature on the subject of the male-female wage differential has shown that despite dramatic structural and behavioral changes in the labor supply of women, a sizeable wage differential exists [19; 2; 9; 6; 4]. O'Neill [16, S92] finds that a sex differential of about 40% as measured by full-time annual earnings has persisted in the U.S. for the last four decades. But while few doubt the existence of the wage gap, there is considerable controversy regarding the role of the factors explaining the gap. The conventional approach of economists has been to estimate earnings as a function of various socio-economic characteristics.' The observed wage gap is decomposed into a part explained by productivity related factors and an unexplained residual, traditionally labelled as discrimination. While it is possible that the unexplained variation in earnings is the result of discrimination, it is also possibly the result of model misspecification.2 In this present paper, we address the misspecification that could possibly arise from omitted variables, endogeneity and sample selection. While these issues have been considered in the context of women's labor supply functions, they have largely been ignored in studies on the wage differential [12; 13]. We approach the problem of omitted variables by formulating a Fixed Effects model. In this way, productivity related factors that are difficult to measure or have unsuitable proxies are netted out from the earnings equation. Furthermore, some of the variables that are used to explain wages are themselves the outcome of discrimination. In particular, the labor market experience of a woman is dependent on her wages earned. Here, we address the endogeneity that such a cause and effect relationship may bring about. A third difficulty arises because a typical sample of working women is a non-random selection of the female labor force giving rise to the problem of sample selection bias. Heckman's [12, 213-17] procedure is used to formulate a sample selection model of earnings. The organization of this paper proceeds as follows: Section II begins with the traditional model of earnings and then develops an extended model which consolidates the issues of omitted variables, endogeneity and sample selection. Section III contains the empirical results of the

Nonwage Benefits in a Simultaneous Model of Wages and Hours: Labor Supply Functions of Young Females

This article argues that the negative relationship between weekly hours worked and the gross hourly wage rate is due to the provision of fringe benefits. As the total weekly wage increases, employers and employees avoid taxation by substituting wages with nontaxable, nonwage benefits. I produce a wage that incorporates the benefit effects and estimate the corresponding labor-supply elasticities. An estimator is presented for the wage/hours market locus and the structural labor-supply function. An empirical application indicates that an estimated negative labor-supply elasticity associated with the observed gross wage is reversed when the adjusted wage is employed.

Supply determinants of part-time work of Dutch married women: the influence of taxes and social premiums

Labour supply is classified into five classes: one for zero hours a week (i.e. nonparticipation), and four for 1–14, 15–24, 25–34, and more than 34 hours a week, respectively. This allows us to investigate whether changes in the taz and social premium system have different effects on the labour supply in different hours classes. Such an investigation has been carried out by applying a multinomial logit analysis in combination with a method introduced by Hausman to allow the incorporatin of taxes and social premiums in the estimation of labour supply functions of Dutch married women. Comparing the 1983 and 1985 tax and social premium systems the results of the analysis indicate that the introduction of the new system has had only a small discouraging effect on the labour supply of Dutch married women.

The Joint Estimation of a Non-Linear Labour Supply Function and a Wage Equation Using Simulated Response Probabilities

When applying maximum likelihood estimation in jointly estimating a labour supply function and a wage equation, it may be practically impossible, both analytically and numerically, to calculate the required response probabilities, especially if the model is non-linear. As an alternative, we consider various simulation estimators. In both Monte Carlo experiments and empirical applications the methods are compared to each other and to ML. The methods are computationally feasible and perform well. (This abstract was borrowed from another version of this item.)

Economic Response to a Guaranteed Annual Income: Experience from Canada and the United States

This article reviews research from the five income-maintenance experiments in Canada and the United States. After sketching the historical and political context of the experiments, we compare their designs and discuss some important analytic difficulties. Our primary focus is the work-incentive issue, both nonstructural estimates of the experimental effects and elasticity estimates of structural labor-supply functions. We provide initial estimates of nonstructural and structural models for the Canadian experiment. We discuss more briefly some non-work-response findings associated with a guaranteed annual income and offer some personal comments on social experimentation and the policy process.

Utility-Based Estimation of Labour Supply Functions in the Regular and Irregular Sectors

Recent theoretical work on labor supply has shown that the tax and transfer system can induce some individuals to work in the irregular labor market. Models designed to represent such behavior are unable to sign unambiguously the impact of the marginal tax rate as well as many key exogenous parameters on the hours supplied in the irregular market except under strong restrictions on preferences. In this paper, the authors estimate a simultaneous labor supply model that allows testing some of the more common assumptions found in the literature, using a unique data set on the underground economy of the metropolitan area of Quebec City, Canada. Estimates of elasticities with respect to predetermined variables are presented. Moreover, they test and empirically reject the assumptions of perfect substitution between regular and irregular work activities as well as additive separability of the utility function. Copyright 1992 by Royal Economic Society.

Pseudo-experimental estimates of labor supply functions in two Turkish state enterprises

Workers were interviewed at two plants and their would-be labor supply in response to various hypothetical hourly wages were recorded. From these observations a labor supply function was estimated for each of 421 workers. Typically, workers were observed to work more hours a week than they would have chosen to work at the present wage they receive, thus receiving less wage for labor offered than they would have received as wage-taking suppliers in a competitive setting.

The Supply of Off‐Farm Labor: A Random Coefficients Approach

AbstractA joint model of off‐farm labor decisions for farm operator and spouse is presented. Attention is given to operator and spouse participation decisions as well as associated problems of multiple sample selectivity biases. Two‐stage fixed and random coefficient methods, corrected for possible selectivity biases, are used to estimate supply function parameters. Results indicate that supply function parameters are random. Variation in important supply parameters is investigated. Results also illustrate the importance of spouse decisions on off‐farm labor supply function structure.

Household labor supply: What kind of data can tell us how many decision makers there are?

Although in empirical work the neoclassical assumption of the household as a homogeneous decision making unit is still predominant, there appears to be an increasing interest in models of household labor supply based on game theoretic notions. Examples are Ashworth and Ulph (1981), Bjorn and Vuong (1984, 1985), Brown and Chuang (1981), Brown and Manser (1978), Horney and McElroy (1988), McElroy and Horney (1981), McElroy (1990), Schultz (1990), Thomas (1990). Quite a few of these papers also attempt to test the assumption of one decision maker against the more general bargaining framework. Typically, these take the form of tests for certain restrictions on the data that should hold if the neoclassical model were valid, and which need not hold in the game theoretic framework. Chiappori (1988b) argues that a truly valid test of a bargaining model should leave from the notion that observed data are the result from some cooperative game being played by the household members, without specifying the solution concept. He then goes on to argue that the restrictions placed on the data by such an assumption are quite mild indeed. In a separate paper Chiappori (1988a) derives restrictions on observed labor supply functions based on this notion. However, his main result is based on rather special assumptions. In this note we put the various results in perspective. Our basic obser-

Taxation in Empirical Labour Supply Models: Lone Mothers in the UK

Taxation has become an integral part of the empirical specification of labour supply models. The opportunity set available to workers is made significantly non-linear by the workings of the tax (and benefit) system and this, in turn, complicates an individual's optimal choice of labour supply. In such a framework the relationship between hours of work, gross wages and other income is necessarily non-linear. Moreover, the marginal wage and virtual income at any chosen hours of work are an implicit function of the hours choice itself. To guarantee a unique solution to this choice problem consumer theory places integrability conditions on the form of wage and income derivatives of labour supply. Similarly, once the problem is made stochastic and econometric methods are utilised to recover unknown parameters, a coherency condition is required to define a well behaved econometric model (see Heckman (I 978) and Gourieroux et al. (I980)). In the labour supply and taxation framework these two conditions are quite naturally closely related. They do, however, have implications for labour supply specification and the reliability of tax reform simulations based on empirical labour supply models. For the case of the linear labour supply model, MaCurdy et al. (I990) document the potential for misleading results that may occur once a linear model is utilised in a framework with non-linear taxation. Such a specification all but guarantees a global forward sloping labour supply function which is not a requirement of economic theory and is empirically often too restrictive. In this paper we focus on two issues. The first relates to the specification of a flexible model allowing backward bending labour supply. The second issue relates to the statistical coherency of such a model in the presence of non-linear taxation. The empirical application in this paper concerns the labour supply behaviour of lone mothers in the UK. This group face a highly non-linear budget constraint. The analysis of their labour supply responses is crucial for the design of effective policy reforms. We use a labour supply specification suggested by

How fragile are male labor supply function estimates?

How fragile are male labor supply function estimates?

Labour supply and unemployment in Japan

The paper investigated the relationship between labour supply and unemployment (employment) in Japan. The paper focused on the discouraged worker effect which specifies that a large number of workers, in particular female labour forces, retire from the labour market in a recession. This lowers the rate of the (published) unemployment. The paper estimated the labour supply function, and presented the estimated figures of the modified (or adjusted) rate of unemployment. Finally, the Okun's coefficient was re-estimated by using this modified rate of unemployment.

Poverty and the forward-falling labor supply function: A microeconomic analysis

Existing subsistence, efficiency, target income and limited aspiration theories impose a backward-bending labor supply behavior on poor workers in less developed countries. Recent empirical studies of worker behavior in the unorganized sectors of LDCs contradict this view and report evidence of both a forward-falling and an upward-rising labor supply. This study formulates an increasing elasticity of substitution utility function model to analyze the observed behaviors. The function displays both nonhomotheticity and variable elasticity properties, and is capable of generating labor supply curves with forward-falling and upward-rising segments. While the upward-rising supply is considered to be usual worker behavior, the forward-falling segment represents a below-subsistence distress sale phenomenon, and the subsistence income of the worker is implied to occur at the turning point joining the two segments of the supply curve. Econometric estimates of the utility and the labor supply functions provide support to the theoretical results.

Estimating labour supply functions under the rationing constraints of over-and under-employment

In this study explicit parametrizations of labour supply are specified and estimated on a sample of single unattached individuals using data from the Panel Study of Income Dynamics, and a generalized tobit maximum likelihood method which is consistent under the assumption that employed hours are exogenous. The estimation methodology explicitly incorporates information on the existence and degree of over-employment and under-employment. For the cases examined it is found that increased generality in the representation of preference is to be desired when estimating labour supply. A surprising finding is that the labour supply responsiveness of a group of single American women who live alone and have no dependants is on a par with estimates for married women examined in earlier studies, and is significantly higher than estimated for American men.

Estimating labour supply functions under the rationing constraints of over-and under-employment

Estimating labour supply functions under the rationing constraints of over-and under-employment

Land holdings, living standards, and labour supply functions: Evidence from a poor agrarian economy

Recent empirical studies of labour supply in LDC agriculture show both positive‐ and negative‐sloping curves, contrary to the traditional claims that such functions are backward‐bending. In this study, the causes for these differing results are traced empirically to the economic status of workers and the level of development of their villages, in sharp contrast to prior assertions that workers in developing nations are limited by low aspirations.

Youth labour supply and the minimum hours constraint - the case of single males

Traditionally economists estimate labour supply functions by assuming that the observed working hours the desired working hours. But if employers require some minimum working hours, e. g. 40 hours a week,then the results obtained by the traditional approach will be misleading since the observed working hours might not be the desired working hours. This paper tests the hypothesis of no minimum hours constraint. It also develops an econometric model explicity considering the minimum hours while estimating a youth labour supply function.

Labor supply, unemployment benefits in an open economy model of interwar Britain

Abstract We estimate a labor supply function in an open economy setting for interwar Britain. The results are generally negative. This suggests that high unemployment benefits did not work directly on shifting labor supply in a market clearing model.

The Impact of the Unemployment Insurance Reform of 1990 on Single Earners

This paper uses estimated labour-supply functions to predict behavioural responses and hence changes in the level and distribution of income resulting from the 1989 reform of the Unemployment Insurance (UI) program. The focus of the paper is on changes in the UI eligibility provisions and benefit structure. Predicted labour-supply responses to the proposed policy changes are very small. This is due to highly inelastic estimated labour-supply functions as well as to the recognition that quantity-constraints from the demand-side of the labour market can limit possible labour-supply.