Labor Supply Responses Research Articles

Is there a desired added worker effect? Evidence from involuntary job losses

AbstractWhile the existing evidence on added worker effects is mixed, most studies find no or only small effects. However, studies to date have mostly analyzed individuals’ actual labor supply responses to their partners’ job loss, neglecting to consider a potential mismatch between desired and actual labor supply adjustments. Using data from the German Socio-Economic Panel (SOEP), we study individuals’ changes in actual and desired working hours after their partners’ involuntary job loss in an event study design. Our results show that actual and desired working hours only increase marginally and that these increases are of similar magnitude. Thus, we provide first evidence that the absence of more substantial added worker effects is in line with individuals’ stated labor supply preferences and is not the result of an inability to realize desired working hours.

More childcare for the poor? Budgetary impacts and female labour supply responses in Italy, Austria and Hungary

ABSTRACT This paper examines the economic implications of achieving three different childcare targets (45%, 50%, and 55%) on children from disadvantaged families in Italy, Austria and Hungary. Using a discrete choice structural labour supply model that considers childcare options, we evaluate the impact of increasing childcare slots for children under 3 in poor households, defined as those in the bottom half of the income distribution. Reaching the revised Barcelona targets of 45% formal childcare participation for children under 3 would notably boost mothers’ workforce engagement in all three countries, particularly in Austria. Moreover, the initial costs of creating additional childcare slots are nearly balanced out by the rise in income tax and social security contributions resulting from increased female labour market participation.

His unemployment, her response, and the moderating role of welfare policies in European countries. Results from a preregistered study.

Recent changes in labour markets have increased employment instability. Under these conditions, in male breadwinner families women might increase their labour supply when their male partners become unemployed. Previous studies have extensively investigated the role played by household and individual characteristics in explaining such increases in the labour supply of women. However, studies which examine the moderating role of specific welfare policies are missing. Our study contributes to the literature by investigating the moderating effect of childcare and tax-benefit policies for the labour supply response of women following the unemployment of their partner. We focus on a sample of 24 EU member states and the UK, during the period 2009-2019, combining longitudinal microdata from EU-SILC with country-period specific policy indicators generated with the use of the tax-benefit simulation model EUROMOD, UKMOD and country-period specific indicators of childcare use. We find that women indeed respond to men's unemployment by increasing their labour supply though the response is fairly weak. We also find the response is not restricted by having children at home or availability of public childcare and does not depend on the generosity of unemployment benefits. It is, however, negatively affected by marginal tax rates.

Take-up and labor supply responses to disability insurance earnings limits

In most disability insurance programs beneficiaries lose some or all of their benefits if they earn above an earnings threshold. While intended to screen out applicants with high remaining working capacity, earnings limits can also distort the labor supply of beneficiaries. We use a reduction in the earnings limit in Hungary to evaluate this trade-off and examine screening and labor supply responses. We find that the policy changed selection into the program modestly but reduced labor supply on the intensive margin significantly. These findings suggest that the earnings threshold should be higher.

SPOUSAL LABOR SUPPLY, CAREGIVING, AND THE VALUE OF DISABILITY INSURANCE

AbstractThis article evaluates the insurance value of the Social Security Disability Insurance (SSDI) program among married households when wives face a trade‐off between market hours and spousal care following their husbands' disability. Event study analyses show that wives' labor supply responses to their husbands' disability are small, and instead, a considerable amount of time is spent in spousal care. Using a dynamic structural model, I find that incorporating time loss due to spousal care increases the insurance value of SSDI relative to its costs. Finally, budget‐neutral policy reforms that subsidize the cost of care can improve social welfare.

When Nurses Travel: Labor Supply Responses to Peak Demand for Nurses

Abstract We study how a market uses temporary workers to accommodate extraordinary demand shocks. When COVID-19 surges, hospitals need additional nurses—especially in specialties central to COVID-19 care. By comparing markets for COVID-relevant and other specialties, we show that the market for travel nurses expands dramatically and estimate travel nurse labor supply across space. Supply is quite elastic, as workers can choose to travel where they are needed. Workers travel longer distances to temporary jobs when payment increases, suggesting that an integrated national market facilitates reallocation when demand spikes. But when national cases peak, travel distance is less responsive to local demand.

Labour supply responses to a negative income tax in Spain

One of the major drawbacks of a Basic Income proposal is that it could induce people to reduce their labour supply. The main aim of this paper is to put forward a financially viable alternative to the current Spanish system of social protection, based on a Negative Income Tax proposal and introducing several changes in the social protection system. Using EUROMOD, the labour behavioural responses to these new conditions are studied in detail, using a structural model of labour supply.The main result is that a reform as the one described in this work will not make people to abandon the labour market, as usually argued for Basic Income proposals. Under this scheme, on the contrary, we can observe a slightly increase in labour supply. This finding has strong implications for policy. Modifying the tax-benefit system, bringing it closer to a Basic Income scheme, will produce significant improvements in inequality and poverty without a significant change in labour supply.

Working more for more and working more for less: Labor supply in the gain and loss domains

We examine labor supply responses to piece rate changes relative to the reference piece rate (RR). In experimental conditions without RR, labor supply increases monotonically with the actual piece rate. In conditions with RR, labor supply increases both when the piece rate rises and falls relative to RR. This non-monotonicity in labor supply responses to piece rate changes around RR is consistent with the effects of framing a given level of income as gain or loss relative to the target level induced by RR: loss aversion makes subjects work more at a given piece rate when the implied income is in the loss rather than gain domain. However, the framing effects disappear when the piece rate could both rise or fall relative to RR.

Labour supply and survivor insurance in the Netherlands

This paper investigates the effects of survivor benefits (SB) on the labour supply of widows. Using rich administrative data on the Dutch population and a reform that considerably restricted eligibility to SB, we identify the causal effect of SB on labour supply. Using a regression discontinuity design strategy based on the cohort-based implementation of the reform, we show that labour income after spousal death increased significantly following the reform (+110 euros, +23%). The effects are driven by changes in labour force participation and hours worked by widows. We also find evidence of program substitution, with widows relying more on disability, unemployment and welfare benefits as a result of the reform. This increase in alternative benefits further limits the reduction in total income caused by the reform by an average of 60 euros. Regarding the heterogeneity of the labour supply response, we find that widows with a relatively higher need for self-insurance increase their labour supply relatively more.

The Norwegian tax holiday: Salience, labor supply responses, and frictions

AbstractAn emerging consensus is that the Frisch elasticity of labor supply is small. This may reflect a lack of salience, inelastic preferences, or prevalence of frictions. Studying survey data collected during a tax holiday in Norway, when earnings were untaxed during a transition between tax systems, I report three findings. First, 80 per cent of adults were aware of the tax holiday. Second, one fifth of adults responded by working more. Third, frictions in adjusting working hours or nonworking time appear to be the reason for a majority of nonresponses. The findings support the long‐held notion that labor supply choices are constrained.

Welfare versus Work under a Negative Income Tax: Evidence from the Gary, Seattle, Denver, and Manitoba Income Maintenance Experiments

The Income Maintenance Experiments have received renewed attention due to growing international interest in a Basic Income. Proponents viewed a Negative Income Tax as a replacement for traditional welfare with stronger work incentives and reduced poverty. However, existing labor supply estimates for single parents are uniformly negative. We re-assess the experimental evidence and find randomization failure in two NITs (Gary and Seattle). In Denver and Manitoba, we find a positive labor supply response for those on welfare prior to random assignment. Our results provide strong evidence that a NIT can increase work activity among single parents on welfare.

Labor Supply Responses to Income Taxation among Older Couples: Evidence from a Canadian Reform

I assess whether the tax code is a viable policy lever for influencing labor supply among older workers. Specifically, using administrative data from Canada, I estimate the earnings responses to a unique reform that lowered tax burdens for couples with a pensioner, using quasi-experimental methods. I find that workers decrease labor supply as tax bills decline but do not respond to changes in marginal tax rates. Hence, while public policy often aims to keep people in the workforce longer, there are conflicting effects of offering tax advantage for seniors on work incentives. I consider implications of these results for age-dependent taxation. (JEL H24, H31, H55, J14, J22)

Labor supply responses to rainfall shocks

AbstractAgricultural production in developing countries is heavily rainfall dependent. Any unexpected variation in rainfall can affect the welfare of households. Using unit record data from India, this paper shows that households can insure against agricultural productivity (rainfall) shocks. Evidence suggests that they do so by varying the time allocation of individual members to different activities, particularly to regular wage work and human capital accumulation. There is a gender‐differentiated aspect to this response. Rainfall shocks adversely affect women's human capital accumulation. While there is no evidence that households use participation in NREGS to insure against rainfall shocks, the availability of NREGS helps reduce the impact of rainfall shocks on human capital accumulation.

Employment and Labor Supply Responses to the Child Tax Credit Expansion: Theory and Evidence

Employment and Labor Supply Responses to the Child Tax Credit Expansion: Theory and Evidence

Asymmetric Labor Supply Responses to Taxation

Asymmetric Labor Supply Responses to Taxation

Employment and Labor Supply Responses to the Child Tax Credit Expansion: Theory and Evidence

Employment and Labor Supply Responses to the Child Tax Credit Expansion: Theory and Evidence

Employment and Labor Supply Responses to the Child Tax Credit Expansion: Theory and Evidence

The 2021 Child Tax Credit (CTC) expansion increased government benefits to families, and especially to families with the lowest incomes. Economic theory predicts that this policy intervention would have led to a reduction in labor supply among adults in those families. Our review of available research suggests that employment within broadly defined demographic groups was not reduced by the 2021 CTC changes. However, we see some evidence that employment was reduced among unmarried mothers with relatively low levels of education and young children—the demographic group that was most affected by the CTC expansion.

Fertility and Labor Supply Responses to Child Allowances: The Introduction of Means-Tested Benefits in France

This article examines fertility and labor supply responses to a 2014 French policy reform that consisted of conditioning the amount of child allowances on household income. Employing regression discontinuity design and French administrative income data, I find that restricting family allowance eligibility criteria decreases fertility among the richest households. The results also highlight that receiving half the amount of the allowances or none leads to an increase in both male and female labor supply through an increase in overtime work. The implied change in earned income, due to an increase in weekly working hours, is found to be comparable to the euro value reduction in benefits. Auxiliary regression analyses show that the fertility decline reflects a decrease in the probability of having an additional child for parents rather than in the probability of becoming parents for households without children.

Disentangling the normative justification of basic income from the structure of the capitalist wage relation and the culture of the work ethic

This article contributes to the literature on basic income and work by articulating the case for disentangling the normative justification of basic income from the structural and temporal imperatives of the capitalist wage relation and the work ethic. It begins with a survey of the major normative justifications of basic income and their respective orientations towards capitalist development and labour markets. Next it presents an argument against tying the justification of basic income to posited labour supply responses based on predicted technological change, the extant empirical evidence from pilots or technical policy simulations. It then addresses the politico-cultural barrier to basic income presented by the wage relation and the work ethic, and critically evaluates the ‘exit option’ argument for basic income. The article concludes that asserting a right to an ad vitam basic income is an ethically justified and politically astute step towards a necessary decentring of (capitalist) work in basic income scholarship and advocacy.

Effects of Child Tax Benefits on Poverty and Labor Supply: Evidence from the Canada Child Benefit and Universal Child Care Benefit

We investigate whether child tax benefits reduce child poverty and labor force participation among single mothers within the context of the 2015 expansion of the Canadian Universal Child Care Benefit (UCCB) and the 2016 introduction of the Canada Child Benefit (CCB). We compare single mothers to single childless women as single mothers have historically had the highest poverty rates. Our analysis indicates that both reforms reduced child poverty, although the Canada Child Benefit had the greater effect. We find no evidence of a labor supply response to either of the program reforms on either the extensive or intensive margins.