Labor Supply Choices Research Articles

Hours of work and the long‐run effects of in‐work transfers

AbstractPolicymakers have increasingly turned to ‘in‐work transfers’ to boost incomes among poorer workers and strengthen work incentives. One attraction of these is that labour supply elasticities are typically greatest at the extensive margin. Because in‐work transfers are normally subject to earnings‐related phase‐outs, they tend to most strongly incentivize part‐time work, weakening incentives to increase hours beyond that. But if part‐time work generates relatively little in the way of human capital and career progression, then policy design should factor in the longer‐term consequences of labour supply choices along the intensive margin. To that end, we use a dynamic model of female labour supply with endogenous human capital accumulation, and study actual and hypothetical welfare reforms in the UK. We show that for a given expansion in the government budget, those reforms that incentivize full‐time work can do considerably more to increase incomes, including among poorer households, and to raise welfare. Our results suggest that in‐work transfers could be refined by paying greater attention to the intensive margin effects through the design of their phase‐outs.

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.

E-commerce, delivery drones and their impact on cities

E-commerce has gained importance over the last years and the COVID-19 pandemic has further strengthened this development. With the increasing opportunities that novel transport technologies such as cargo drones offer, e-commerce is likely to even become more attractive in upcoming years. This paper therefore analyses the long-run effects of increasing importance of e-commerce and, more specifically, the impact of a shift towards package delivery via drones. Using a polycentric urban spatial general equilibrium model that incorporates the different retail channels, we model the consumer’s choice between local and online shopping. In the case of online shopping, delivery takes place either via drone or via truck. Due to the equilibrium mechanisms, changes in shopping behavior potentially result in different home and work location choices or labor supply choices. The model thus allows assessing the long-run effects of e-commerce and drone delivery, also on related markets such as the markets for land, labor and goods. A numerical simulation of the model shows that each additional retail channel adds welfare and that changes in the shopping channels result in changes in location choices of households and companies.

Discretionary Extensions to Unemployment Insurance Compensation and Some Potential Costs for a McCall Worker

Unemployment insurance provides temporary cash benefits to eligible unemployed workers. Benefits are sometimes extended by discretion during economic slumps. In a model that features temporary benefits and sequential job opportunities, a worker’s reservation wages are studied when policymakers can make discretionary extensions to benefits. A worker’s optimal labor-supply choice is characterized by a sequence of reservation wages that increases with weeks of remaining benefits. The possibility of an extension raises the entire sequence of reservation wages, meaning a worker is more selective when accepting job offers throughout their spell of unemployment. The welfare consequences of misperceiving the probability and length of an extension are investigated. Properties of the model can help policymakers interpret data on reservation wages, which may be important if extended benefits are used more often in response to economic slumps, virus pandemics, extreme heat, and natural disasters.

Cross-country differences in preferences for leisure

The starting point of this paper is to document considerable cross-country variation in the “labor wedge”, a common measure of labor market frictions. Its variation is theoretically isomorphic to differences in a preference-for-leisure parameter. The paper proceeds to investigate what might explain the variation. It presents three separate empirical exercises supportive of the view that, to a substantial extent, cross-sectional labor-wedge differences are capturing systematic differences in leisure preferences. Firstly, in cross-country regressions, a cultural measure of preferences for leisure, elicited from the World Values Survey, contains economically larger and statistically more robust explanatory power than do traditional measures of labor market frictions. Secondly, following the epidemiological approach, individual-level data on labor-supply choices of descendants of immigrants in the United States and Sweden line up with what an “inherited” preference for leisure would predict. Thirdly, in the spirit of an out-of-sample test, the paper looks at the implication of differences in preferences for cross-country differences in optimal labor taxation. Economic theory suggests a negative association between preferences for leisure and labor taxes; empirical data verify the theoretical prediction.

Aggregation in economies with search frictions

We derive an aggregation result in economies with indivisible labor supply choices and frictional labor markets, obtaining a tractable model of gross worker flows in aggregate labor markets with search frictions. Our result explores the fact that economies with non-convex choice sets and idiosyncratic shocks allow for sunspot equilibria à la Kehoe et al. (2002). We use comparative steady state analysis to demonstrate the applicability of our aggregation result. Our framework reconciles the neoclassical growth model with search frictions with a mildly procyclical participation rate and matches the gross worker flows underpinning those dynamics.

Impact of Remittances on Labour Supply and Occupational Choice in Rural India

This study examines the impact of remittances on the labour market decisions of left behind adult family members in rural households in India. Using both selectivity and endogeniety corrected models, the results find evidence of a dependency effect wherein individuals belonging to remittance receiving households are less inclined to participate in the labour market. These effects are much stronger in case of international remittances. Incidentally, the reduction in work participation was found to larger for males than females. While, on the one hand, domestic remittances were observed to increase the intensity of labour supplied by households, international remittances, on the other hand, were found to be lowering hours of work done by left behind family members. Further, domestic remittances increase the proportion of labour supplied to self-employment activities in agriculture; international remittances, on the contrary, were found to be pushing workers into non-agricultural activities. The differences in the impact of domestic and international remittances on labour market participation and work intensity can be attributed to the differences in absolute size of remittances available per capita from the two alternate sources while unobservable household characteristics and locational factors can explain the variations in intra-household labour allocation across activities.

Marriage Market and Labor Market Sorting

We build a novel equilibrium model in which households' labor supply choices form the link between sorting on the marriage market and sorting on the labor market. We first show that in theory, the nature of home production – whether partners' hours are complements or substitutes – shapes marriage market sorting, labor market sorting and labor supply choices in equilibrium. We then estimate our model on German data to assess the nature of home production in the data, and find that spouses' home hours are complements. We investigate to what extent complementarity in home hours drives sorting and inequality. We find that the home production complementarity – by strengthening positive marriage sorting and reducing the gender gap in hours and labor sorting – puts significant downward pressure on the gender wage gap and within-household income inequality, but it fuels between-household inequality. Our estimated model sheds new light on the sources of inequality in today's Germany and – by identifying important shifts in home production technology towards more complementarity – on the evolution of inequality over time.

The Gender Earnings Gap in the Gig Economy: Evidence from over a Million Rideshare Drivers

Abstract The growth of the “gig” economy generates worker flexibility that, some have speculated, will favour women. We explore this by examining labour supply choices and earnings among more than a million rideshare drivers on Uber in the U.S. We document a roughly 7% gender earnings gap amongst drivers. We show that this gap can be entirely attributed to three factors: experience on the platform (learning-by-doing), preferences and constraints over where to work (driven largely by where drivers live and, to a lesser extent, safety), and preferences for driving speed. We do not find that men and women are differentially affected by a taste for specific hours, a return to within-week work intensity, or customer discrimination. Our results suggest that, in a “gig” economy setting with no gender discrimination and highly flexible labour markets, women’s relatively high opportunity cost of non-paid-work time and gender-based differences in preferences and constraints can sustain a gender pay gap.

A stochastic prediction of minibus taxi driver behaviour in South Africa

For many emerging and developing countries, urbanization and demographic changes require a remodelling of transportation systems and networks. Paratransit, with its demand responsive characteristics of being fully flexible, often represents the backbone of the transport sector while being an informal and, therefore, fairly unorganised system with little knowledge about working routines of its workers. As an example, this paper analyses the minibus taxi industry in South Africa based on data from Rustenburg, a mid-sized city, to gain valuable insights into the working behaviour of minibus taxi drivers by taking an evidence-based and data-based approach. Therefore, the principle of reference-dependent preferences is applied to the data to investigate the labour supply choice of taxi drivers, since sheer profit maximization has proven inadequate for the analysis here. Results indicate, that working hours for South African minibus taxi drivers are likely to be in the 10–12 h bracket with a revenue-dependent additional hour accounting for the revenue performance of that day. As a main finding however, South African minibus taxi drivers cannot clearly be attributed to either reference dependence or profit-maximization behaviour.

Dynamic Effects of Educational Assortative Mating on Labor Supply

In 30% of young American couples the wife is more educated than the husband. Those women are characterized by a substantially higher employment (all else equal), which in turn amplifies income inequality across couples. Using NLSY79, we formulate and structurally estimate a dynamic life-cycle model of endogenous marriage and labor supply decisions in a collective framework. We establish that the education gap at the time of marriage, produces dynamic effects due to human capital accumulation and implied wage growth. Inequality between couples is largely driven by the persistence in labor supply choices and only slightly affected by assortative matching.

REAL WAGE RIGIDITY, HETEROGENEITY, AND THE BUSINESS CYCLES

This paper investigates the quantitative implications of real wage rigidities and heterogeneity for two long-lasting puzzles in the business cycle literature: the low correlation between total hours worked and labor productivity and the large volatility of the labor wedge, defined as a gap between the marginal rate of substitution of aggregate leisure for aggregate consumption and the marginal product of aggregate labor. I shed light on these issues by extending a heterogeneous-agent model with an indivisible labor supply choice to real wage rigidities. I find that a small amount of real wage stickiness would be sufficient to resolve both anomalies when long-term wage contracts and heterogeneity are taken into account.

Retirement of the self-employed in the Netherlands

We investigate retirement decisions of the self-employed in the Netherlands using administrative data focusing on individuals around 65, the state pension age, after which each Dutch resident receives the Old Age State Pension annuity. Since the eligibility age and the magnitude of this state pension are known well in advance, we expect to find no impact on labor supply choices, unless individuals face liquidity constraints. We investigate whether this is the case, by looking at retirement and changes in earnings of the self-employed around age 65. We find a peak in retirement when self-employed reach the state pension age, which is unlikely to be due to liquidity constraints but might be explained by behavioral features.

Tax Policies and Informality in South Africa

AbstractUsing a micro–macro simulation approach, we evaluate the effects of different tax policies in South Africa. The country is characterised by a high unemployment rate, while the informal sector remains relatively small. The effects of the simulated tax policies are quantified at the macro level, on the individual's labour supply choices, and on income distribution, inequality and poverty. We find that the equity‐efficiency trade‐off can be improved by introducing a system combining a sufficiently high flat rate and a lump‐sum transfer paid only to formal workers. Interestingly, even though it increases the informal sector, this reform reduces inequality and poverty through a reduction in unemployment. © 2019 John Wiley & Sons, Ltd.

Real wages, amenities and the adjustment of working hours across local labour markets

AbstractHigh prices that are not offset by equally high incomes are often seen as an affordability problem. To get by, poorer workers in these areas might have to work longer hours. Alternatively, lower real wages might indicate a more desirable place to live and induce high‐income people to trade off cash for leisure time. Both interpretations suggest a link between real wages and an individual's labour supply choice. Using panel data, I observe how working hours change, when workers move place. I find that working hours increase by 0.42% for a 10% decrease of local real wage. The effect is stronger for low‐skilled workers at the bottom of the wage distribution, indicating an affordability mechanism that might further exacerbate inequality.

Labour Market Decisions of the Self-Employed in the Netherlands at the Statutory Retirement Age

We investigate retirement decisions of the self-employed in the Netherlands using administrative data. We focus on the time period around which individuals reach the statutory retirement age (SRA, 65 years in most cases). After the statutory retirement age, each Dutch resident receives the Old Age State Pension annuity (AOW), providing an income at the subsistence level. Both the timing and the magnitude of this state pension are well known in advance. According to a standard leisure/consumption trade-off life cycle model, receiving AOW should therefore have no impact on labour supply choices. While employees often face the demand side restriction of mandatory retirement, this does not apply to the self-employed. We investigate whether retirement and earnings of the self-employed change at the SRA and whether any such changes vary with, e.g., the level of financial wealth. We find a peak in retirement when self-employed reach the SRA. The evidence suggests that the benchmark of retiring at 65 is acting as a driver, due to behavioural features like anchoring or a social norm.

A model of labor supply, fixed costs and work schedules

To analyze labor supply allocations, we propose a three-dimensional labor supply framework that distinguishes between hours worked per day, days worked per week and workweeks. Individuals make labor supply choices given heterogeneous schedule-dependent fixed costs of work. The three margins are not perfect substitutes. Leisure on days not worked in a workweek has the largest weight in preferences, leisure on weeks off has the smallest weight. We use the model to analyze heterogeneous response to changes in fixed costs, schedule flexibility, and restrictions on weekly hours. Fixed costs of work affect response to each policy and determine associated losses.

Insurance-markets Equilibrium with Sequential Non-convex Market-Sector and Divisible Informal-Sector Labor Supply

This paper describes the lottery- and insurance-market equilibrium in an economy with non-convex market-sector employment and informal sector work. In contrast to Vasilev 2016a, the discrete-continuous labor supply decision in this paper is a sequential one, and instead of home production, we focus on informal activity. The presence of non-convexity requires that an insurance market for market-sector employment be put in operation to achieve market completeness. In addition, given that the labor choice for market work and informal-sector hours is made in succes- sion, the insurance market for market employment needs to close before the labor supply choice in the grey economy is made. This timing is reminiscent of the results obtained in Vasilev 2016b) and also a direct consequence of the sequential nature of the discrete-continuous sectoral labor supply decision.

Filters and limits in filtered spaces

In this lecture notes, we study filters and limits in a feasible sufficiently general way for many applications to Physics, Economics and Social Science. In particular we analyze:
 
 Filters;
 
 
 Filter bases;
 
 
 Basic example in topological spaces;
 
 
 Basic examples in preordered spaces;
 
 
 Filtered spaces;
 
 
 Induced filter bases;
 
 
 Examples in topological spaces;
 
 
 Examples on the real line;
 
 
 Limits;
 
 
 Limits with respect to filter bases;
 
 
 Limits with respect to filter bases on subspaces;
 
 
 Limits and topology;
 
 
 Limits of functions on topological spaces;
 
 
 Limits of functions on a topological subspace;
 
 
 Some basic theorems for topology;
 
 
 Unicity of the limit in Hausdor spaces;
 
 
 Limits and functionals;
 
 
 Limits for real functional;
 
 
 Limits and operations;
 
 
 Local boundness;
 
 
 Complements;
 
 
 Limits and convergence of filtered bases;
 
 
 Limit of composition.
 

Turbulence and the employment experience of older workers

This paper provides new interpretations of the effects of rising economic turbulence—an increase in the rate of skill depreciation upon job loss—and its interaction with labor market institutions. We have three main results, based on a life‐cycle model with labor market frictions and labor force participation decisions. First, rising economic turbulence during the 1970s and 1980s accounts for the decline in employment among older workers in the United States. Second, the interaction between turbulence and institutions explains most of the reduction in labor force participation among older workers in Europe over this period, but ultimately explains little of the rise in unemployment. Third, only a small share of the increase in unemployment can be attributed to the early retirement policies that were implemented in Europe from the 1970s up until the early 1990s. Our analysis indicates that incorporating an operative labor supply choice can pose serious challenges to theories aiming to explain the European unemployment problem. Job search job loss turbulence European unemployment labor force participation E24 J21 J64