Labor Supply Research Articles

Impact of the 2017 Tax Cuts and Jobs Act on Household Labor Supply and Welfare across the Income Distribution

Impact of the 2017 Tax Cuts and Jobs Act on Household Labor Supply and Welfare across the Income Distribution

The Impact of Climate Change on Work: Lessons for Developing Countries

Abstract We identify five areas where climate change may impact work and draw lessons for developing countries by reviewing the evidence. Firstly, demand for labor is unevenly affected, with agriculture, heat-exposed manufacturing, and the brown energy sector experiencing downturns, while other sectors may see a rise, resulting in an uncertain overall impact. Secondly, climate change impacts labor supply through absenteeism, shirking, and altering work-time patterns, depending on the activity and sector. Thirdly, productivity may decline, especially in heat-exposed industries, primarily due to health reasons. Fourthly, heightened earnings variability likely increases vulnerability among the self-employed. Fifthly, climate change can influence labor allocation and catalyze sectoral reallocation. Higher temperatures are also linked to increased migration. But caution is needed in interpreting these findings, as studies across these topics predominantly use fixed effect estimation and concentrate on short-term impacts, neglecting adaptation. Emerging research on adaptation indicates that workplace cooling is unappealing for firms with narrow profit margins, while coping strategies of farms and households have unclear optimality due to adoption barriers. Government responses remain understudied, with six potential areas identified: green jobs, green skills, labor-oriented adaptation, flexible work regulation, labor market integration, and social protection. We conclude by outlining future research directions.

Human capital for the green economy

This study aims to assess the market availability of human capital for the needs of the green economy under the conditions of the changing labour market in Poland. It is a theoretical and analytical study based on desk research and critical analysis of available factual information. Based on an analysis of quantitative data describing the age structure and education of Poles from the perspective of three consecutive decades, a growing labour supply deficit was found. It also points to a possible shortage of competencies needed to green the economy. It was emphasised that, in view of the low effectiveness of the state's prevention policy aimed at preventing the growing demographic crisis, it would be necessary to supplement the shortage of workers from external resources, that is, labour migration. However, this may also be difficult because the labour markets in other European countries become increasingly competitive. Recommended solutions to foster labour market sustainability for the green economy may be to delay the exit of employees from the labour market, boost female economic activity, and make the education system more efficient.

The Port Macquarie Settlement, New South Wales, 1821–1847: Interconnections within Landscapes of Convict Labor and Industry

AbstractThis article explores the convict-punishment settlement of Port Macquarie on the mid-north coast of New South Wales between 1821 and 1847. Synthesizing previous and new historical and archaeological research, it identifies a range of major and minor sites of labor, accommodation, reform, and punishment within the settlement’s landscape during its period as a restricted convict prison from 1821 to 1830. From this it reconstructs the network of labor provision and infrastructure development, which we argue was not just about making the settlement economically self-sustaining, but also intended to create the framework for a transition to a “free” settlement. To this end this article also examines the ways in which that transformation occurred, with former sites of convict labor and the convicts themselves transitioning from government control to private settlers, until the withdrawal of the government infrastructure for convict management in 1847.

The impact of household registration system reform: evidence from China

ABSTRACT We construct a DSGE model with three sectors: households which are divided into urban registered residents and non-urban residents, firm, and government, calibrate and estimate the model with data of China. This study aims to evaluate the impact of household registration system (HRS) reform of China, and provides a theoretical thought to understand this reform. Impulse response analysis and counterfactual simulation show the short-term and long-term effects of the reform on output, consumption, and labour supply. The shock (1%) in public goods consumption increases labour supply and private consumption of non-urban registered residents by 0.21% and 0.42%, decreases by about 0.13% and 0.14% in urban registered residents, and increases in overall labour supply, consumption, and output levels by approximately 0.08%, 0.26% and 0.36%, respectively. While the impact of wage level increases labour supply and private consumption of non-urban registered residents by about 0.03% and 0.6%, about 0.03% and 0.25% of urban registered residents. This leads to increases of overall labour supply, consumption, and output levels by approximately 0.03%, 0.28% and 0.12%, respectively. Transfer payment shocks has a very weak effect. Overall, the economic effects of the household registration system reform policy are significant.

Determinants of older people labour market decision in Ghana

PurposeThe purpose of this paper is to examine the prevalence of labour force participation and the factors affecting labour supply among older persons in Ghana. Both the extensive and intensive margins of older persons’ labour supply were analysed.Design/methodology/approachThe paper uses nationally representative samples of household and individual data in 2016–2017 – Ghana Living Standard Survey (GLSS 7) data – for the analysis. Heckman’s sample selection model is used to analyse both the extensive and intensive margins of older persons’ labour supply.FindingsThe study found that older persons in Ghana who are pensioners, widowed, have high levels of education, poor health status and live in urban areas are less likely to participate actively in the labour market. On the other hand, being head of a household, married and owning certain assets increase the likelihood of an older person to work. Furthermore, pensions, household headship and post-secondary education have negative effects on the labour supply as having them make older persons work fewer hours per week compared to their counterparts.Originality/valueThis research is the first study to examine the prevalence of old age employment and factors that affect labour market decisions of older persons in Ghana. It also adds to the limited literature on pension and retirement decisions in developing countries.

Measuring physicians' response to incentives: Labour supply, multitasking and earnings

AbstractPhysicians are typically paid for services completed. Yet, they provide different types of services with different prices, introducing a multitasking element to their labour‐supply decisions. We show that optimal behaviour generates a maximum earnings function in which earnings depend on prices and total hours worked. Estimation by limited‐information methods identifies a lower bound to the own‐price substitution effect of a price change. Full‐information methods identify the full response to incentives, including income effects. We illustrate these methods on a sample of specialist physicians working in Québec, Canada. Our results suggest that the own‐price substitution effects of a price change are both economically and statistically significant. Income effects are present but overridden when prices increase for individual services. In contrast, in the presence of broad‐based fee increases, the income effect dominates the substitution effect, which leads physicians to reduce their supply of services.

Remittance Dynamics: Unraveling Socio-Economic Impact on Households in Pokhara

This research aims to evaluate the socio-economic implications of remittances on households in Pokhara Valley, Nepal by employing a positivist approach, empirical observation, quantitative analysis, and statistical methods through comparative research design and utilizes statistical tools such as chi-square tests and independent samples t-tests. Quantitative data are collected through structured questionnaires, enabling numerical insights into spending patterns, human capital investments, and agricultural involvement for hypothesis testing. From the findings of this study households receiving remittances demonstrate higher investments in health and education, positively impacting their socio-economic status. However, migration for remittances has led to a decreased labour supply, negatively affecting agricultural involvement. The research concludes by emphasizing the need for further comprehensive research to elucidate the broader socio-economic consequences of remittances on households at the national level. The study holds implications for policymakers, urging measures to encourage remittance investments in domestic development. It recommends addressing import trends and balancing payment deficits by leveraging remittance funds. Additionally, the research suggests for initiatives supporting agricultural production, small industries, and market development to utilize remittance funds for broader economic growth.

Does reliable electricity mean lesser agricultural labor wages? Evidence from Indian villages

Using a panel of 1,171 villages in rural India that were surveyed in the India Human Development Surveys, I perform a difference-in-differences analysis to find that improvements in electricity reliability have a negative effect on the increase in casual agricultural labor wage rates. Changes in men’s wage rates are found to be affected more adversely than women’s, resulting in a smaller widening of the gender wage gap. I find that better electricity reliability reduces the time spent by women in fuel collection substantially which could potentially increase labor supply. The demand for labor remains unaffected by reliability, which could lead the surplus in labor supply to cause wage rates to stunt. However, I show that electrical appliances such as groundwater pumps considerably increase labor demand indicating that governments could target increasing the adoption of electric pumps along with bettering the quality of electricity to absorb the surplus labor into agriculture.

Uniform agricultural tax abolition and differential household labor supply: Evidence from China's urban household survey

Uniform government public policy has steadily shaped the labor supply from households in the past few decades in China with possible differential impact on each parent. This paper investigates how uniform tax policy change plays differential roles in household's labor supply through government public education spending. Utilizing the exogenous shock from China's agricultural tax abolition in 2005, we find that the abolition results in a reduction in female employment but an increase in male employment. Specifically, a 1% increase of agricultural tax to public revenue ratio in the reference year leads to a 0.485% labor supply reduction and 1.50 fewer hours of work per month for married women, whereas the married men's labor supply increases by 0.191% and their working hours by 1.06 h in a typical urban family with school-going children. The effects are greater on married women with primary school-age children and married men from high-asset households. Our mechanism analysis indicates that public education spending works as a substitute for private education spending and affects the household labor supply through investment in children's human capital. Our findings offer a new perspective on the decreasing female labor supply and the widening employment gap between (married) women and (married) men in the Chinese labor market. The findings suggest that public tax policy could lead to unintended consequences on household's labor supply decisions, and thus exacerbate the gender employment gap in the labor market.

Household Labor Supply and the Value of Social Security Survivors Benefits

We combine quasi-experimental variation in spousal death and age eligibility for survivors benefits using US tax records to study the effects on American households’ labor supply and the design of social security’s survivors insurance. Benefit eligibility at the exact age of 60 induces sharp reductions in the labor supply of newly widowed households, highlighting the value of survivors benefits and the liquidity they provide following the shock. Among eligible widows, the spousal death event induces no increases in labor supply, suggesting little residual need to self-insure. Using theory, we underscore the program’s protective insurance role and its high valuation among survivors. (JEL D12, D91, G22, G51, H55, J16, J22)

Hospital Queues, Patient Health, and Labor Supply

Long waits for health care raise concerns about the consequences of delayed treatment. We use variation in queue congestion to estimate effects of wait time for orthopedic surgery. We do not find that longer wait times lead to increased health care utilization. However, we do find persistent reductions in labor supply: long waits increase medium to long-term work absences and permanent disability receipt. Effects are driven by individuals who are on sick leave at referral. Our results are consistent with patterns of state dependence, where extended periods of temporary disability while awaiting treatment create persistent barriers to returning to work. (JEL I11, I12, I18, J22)

The Indirect Fiscal Benefits of Low-Skilled Immigration

The Indirect Fiscal Benefits of Low-Skilled Immigration

Consumption externalities, elastic labor supply, and wealth distribution

This study employs a neoclassical growth model to investigate the impact of consumption externalities on the distribution of wealth. It also jointly accounts for heterogeneity in the degree of consumption externalities, heterogeneity in the initial wealth endowments, and endogenous labor supply. First, we demonstrate that catching-up occurs when an initially poorer household works more than an initially wealthier one, after which the additional income acquired through hard work offsets the initial wealth difference. Second, a reduction in wealth inequality is only consistent and systematic if an initially wealthier household works relatively less than the social average. When this condition is not met, a reduction in wealth inequality only occurs if the initial wealth is highly and unevenly distributed.

Agricultural mechanization and the performance of the local Chinese economy

In this study, we analyze the impact of agricultural mechanization on the local Chinese economy from 2010 to 2020. Findings based on panel data and instrumental variable methods show that agricultural mechanization led to a significant decline in the local gross domestic product. In particular, agricultural mechanization changes the sector’s production and lowers its output value. Agricultural mechanization has reduced the need for labor to such an extent that young Chinese tend to seek jobs in the non-farming sector, leading to a fall in the local agricultural labor supply and household consumption, adversely affecting the development of local industries and service sectors. Mechanization has also led to cash crops being increasingly replaced by grain crops, reducing the total agricultural output. Finally, this paper presents some policy suggestions for agricultural production and rural development.

Reprint of: Quantifying the Germany shock: Structural labor-market reforms and spillovers in a currency union

We examine the effects of unilateral structural reforms within a currency union. Focusing on the surge of German competitiveness following the introduction of the Euro, we first provide reduced-form causal evidence supporting the notion that German structural labor-market reforms in the early 2000s led to a crowding-out of manufacturing employment in other Eurozone economies. To assess the impact of this German competitiveness shock, we build a quantitative multi-sector trade model that features downward nominal wage rigidities, endogenous labor supply, unemployment-insurance benefits and international savings. The fixed nominal exchange rate can create binding nominal rigidities in response to a foreign real supply shock – like the one prompted by the German reforms – resulting in significant contraction of manufacturing sectors and increased involuntary unemployment across other Eurozone countries. We consider a number of counterfactual scenarios, such as the impact of German labor-market reforms in the absence of a fixed exchange-rate regime, the role of coordinated reforms within the Eurozone and a higher average inflation rate.

Why Labor Supply Matters for Macroeconomics

Benchmark models taught in undergraduate macro do not attribute any role for labor supply as an important determinant of macroeconomic outcomes. The first part of this paper documents three facts. First, differences in hours of work across OECD economies are large and imply large differences in GDP per capita. Second, there are large differences in the size of tax and transfer programs across countries, as proxied by differences in government revenues relative to the GDP. Third, these two outcomes are strongly negatively correlated. Taken together, these facts suggest an important role for labor supply in affecting macroeconomic outcomes. I conjecture that the reason why macro textbooks do not include a discussion of labor supply stems from a belief that labor supply elasticities are sufficiently small that even large differences in work incentives do not generate important macroeconomic effects. The second part of this paper argues that this belief is based on incorrect inference linking small elasticities for prime age male to small aggregate labor supply elasticities. The role of labor supply at the extensive margin plays a critical role in understanding this mistake in this inference.

Urban Public Works in Spatial Equilibrium: Experimental Evidence from Ethiopia

This paper evaluates a large urban public works program randomly rolled out across neighborhoods of Addis Ababa, Ethiopia. We find the program increased public employment and reduced private labor supply among beneficiaries and improved local amenities in treated locations. We then combine a spatial equilibrium model and unique commuting data to estimate the spillover effects of the program on private sector wages across neighborhoods: under full program rollout, wages increased by 18.6 percent. Using our model, we show that welfare gains to the poor are six times larger when we include the indirect effects on private wages and local amenities. (JEL H76, I38, J22, J31, O15, O18, R23)

Does maternity leave reform impact on the labour supply of the elderly? Evidence from a natural experiment in Vietnam

AbstractThe aging population has been rising rapidly in every country, slowing the labour force and causing lower per capita growth. Many policies incentivize working in old age as it can alleviate the challenges of the aging population. This study examines the impacts of the extended maternity leave reform in Vietnam on elderly labour market outcomes. As grandparents' childcare responsibility may be reduced by maternal childcare following the extended maternal leave, especially for elderly living with children smaller than 1 year old, the reform gives older adults or grandparents more flexibility to join the labour market. Using the difference‐in‐differences model, we find that older people in the treatment group are more likely to return to the labour market following the reform implementation. The effect is positive and most robust for the self‐employment group rather than waged employment and for males rather than females. Our study suggests that there is a need for a policy design to shift public finance into the healthcare and pension system.

Long-run consequences of informal elderly care and implications of public long-term care insurance

We estimate a dynamic structural model of labor supply, retirement, and informal caregiving to study short and long-term costs of informal caregiving in Germany. Incorporating labor market frictions and the German tax and benefit system, we find that in the absence of Germany’s public long-term insurance scheme, informal elderly care has adverse and persistent effects on labor market outcomes and, thus, negatively affects lifetime earnings and future pension benefits. These consequences of caregiving are heterogeneous and depend on age, previous earnings, and institutional regulations. Policy simulations suggest that while public long-term care insurance policies are fiscally costly and induce negative labor market effects, they can largely offset the personal costs of caregiving and increase welfare, especially for low-income individuals.