Labor Supply Model Research Articles

Reallocation of time after an exogenous reduction in mandatory travel: transport, work, and leisure in Chilean two-worker two-gender households

A two-step model framework is proposed and applied to analyze empirically the impact of a travel time reduction on labor supply in two-worker two-gender households, using a nationwide data set for time use collected in 2015 in Chile. First, a system of structural equations (SSE) is estimated to reveal which activities can be considered as committed, and to unveil the hierarchy of activities by gender undertaken by the household workers to help defining the labor supply model. Then a quadratic formulation including committed time for each individual and committed expenses for the family is applied to the time-use data to estimate a labor supply model, considering the findings with the SSE (hierarchy and committed activities). Results were obtained controlling for household size, region, and age, showing systematically that labor supply diminishes with the wage rates of either working member of the household (a forward falling shape), that committed expenses induces more work, and that diminishing mandatory travel time induces an increase in working hours that varies between 27 and 64 percent of the liberated time, in line with 2023 reports on the reallocation of liberated travel time due to remote working and confirming the theoretical findings by Jara-Diaz and Contreras (2024).

Lost jobs, new jobs and optimal tax-transfer reforms

AbstractAutomation and globalisation imply deep changes in the labour market. An important policy issue is whether and how the tax-transfer rules should be reformed to help coping with those changes. While the prevailing response has consisted of more sophisticated designs of mean-testing and targeting, we also witness an increasing interest in policies inspired by simplicity. Using a combination of behavioural microsimulation and numerical optimization, we look for a (social welfare) optimal tax-transfer rule within a flexible class where total household disposable income is a 4th-degree polynomial in total household taxable income plus a constant. We use a model of household labour supply that makes it possible to account for equilibrium constraints and evaluate the effects of changes of the labour demand scenario. Beside the (observed) Status quo scenario, we consider two alternative stylized cases: the “Jobless” scenario and the “Polarised” scenario. We simulate and compare the social welfare attained by the current tax-transfer rules under the three scenarios and the social welfare attained by the different polynomial optimal tax-transfer rules identified in each scenario. We present results using the 2015 EU-SILC data sets for France, Germany, Italy and Luxembourg. The polynomial optimal rules are social welfare superior to the current ones in all the countries and under all the scenarios and—with the exception of Luxembourg—are close to a Universal Basic Income (or a Negative Income Tax) plus a not-too progressive tax rule (close to a Flat Tax).

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.

Why gender norms matter

AbstractThis study examines the influence of gender norms on household behaviour and welfare. Using Japanese household data, we find that households with a conventional norm on gender roles spend more time on housework and less money on family‐common goods. To understand the underlying mechanism, we construct a collective labour supply model that explicitly introduces gender norms. We show that an inefficient ratio of wives' household time to that of husbands leads to an increase in the shadow price of domestic goods, through which the norm distorts the time and money allocated to home production and decreases household welfare.

The welfare costs of misinformation

Social Security (SS) benefits, with an average replacement rate of around 40 percent, serve as an important source of retirement income for older Americans. Yet, the size of lifetime benefits a household receives depends on many factors, including the age of benefit claim and life-cycle labor supply decisions. Given the complexity of the associated rules, many households may lack understanding of one or more aspects of the system. In this work, we use a life-cycle model of consumption, savings, labor supply, and Social Security application decisions to study the welfare impact of such misinformation. Our findings indicate significant welfare losses stemming from misinformation, especially when it causes individuals to strongly over-estimate the value of future entitlements. Additionally, we show that the Social Security Statement program, a large public information campaign, must inform only 20.1 percent of misinformed individuals in order for aggregate benefits of information to outweigh aggregate costs.

A Quantitative Theory of the New Life Cycle of Women's Employment

“A new life cycle of women's labor force participation has emerged” (Goldin and Mitchell, 2017). Compared to previous cohorts, the employment profile of American college-educated married women born after the mid-1950s is flatter and higher with no hump but with a dip in the middle between ages 30-39. At the same time, these younger cohorts have delayed births, but their completed fertility rate has increased. I develop a quantitative theory to explain the changes in college-educated women's employment and fertility decisions across cohorts. First, I provide reduced-form evidence of a positive correlation between fertility and employment decisions. Second, I build a life-cycle model of labor supply and fertility decisions. My estimates indicate that the marginal returns to experience of college-educated married women increased by 33 percent. Although on-the-job accumulation of experience plays a crucial role in generating employment shifts and birth delays, the model does not generate an increase in the total fertility rate in the absence of infertility treatments. Thus, to understand why college-educated married women's life-cycle employment profiles and fertility decisions are changing, both factors must be considered.

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 public health and economic burden of long COVID in Australia, 2022-24: a modelling study.

To estimate the number of people in Australia with long COVID by age group, and the associated medium term productivity and economic losses. Modelling study: a susceptible-exposed-infected-recovered (SEIR) model to estimate the number of people with long COVID over time following single infections, and a labour supply model to estimate productivity losses as a proportion of gross domestic product (GDP). Australia, 2022-2024. Estimated number of people infected with severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) during 2022-2023 (based on serosurvey data) who have longCOVID, 2022-2024, by age group; estimated GDP loss during 2022 caused by reduced labour supply attributable to long COVID. Our model projected that the number of people with long COVID following a single infection in 2022 would peak in September 2022, when 310 341-1 374 805 people (1.2-5.4% of Australians) would have symptoms of long COVID, declining to 172 530-872 799 people (0.7-3.4%) in December 2024, including 7902-30 002 children aged 0-4 years (0.6-2.2%). The estimated mean labour loss attributable to long COVID in 2022 was projected to be 102.4million (95% confidence interval [CI], 50.4-162.2 million) worked hours, equivalent to 0.48% (95% CI, 0.24-0.76%) of total worked hours in Australia during the 2020-21 financial year. The estimated mean GDP loss caused by the projected decline in labour supply and reduced use of other production factors was $9.6 billion (95% CI, $4.7-15.2 billion), or 0.5% of GDP. The estimated labour loss was greatest for people aged 30-39 years (27.5 million [95% CI, 16.0-41.0 million] hours; 26.9% of total labour loss) and people aged 40-49 years (24.5 million [95% CI, 12.1-38.7 million] hours; 23.9% of total labour loss). Widespread SARS-CoV-2 infections in Australia mean that even a small proportion of infected people developing long COVID-related illness and disability could have important population health and economic effects. A paradigm shift is needed, from a sole focus on the immediate effects of coronavirus disease 2019 (COVID-19) to preventing and treating COVID-19 and treating long COVID, with implications for vaccine and antiviral policy and other mitigation of COVID-19.

Universal Full-Day Kindergarten and Maternal Labor Supply: A Life-Cycle Analysis.

We estimate the effect of state-level policies enacting universal free full-day kindergarten on mothers' labor supply using a life-cycle analysis. Similar to previous research on childcare and labor supply, we find that free full-day kindergarten increases labor force participation rates for mothers whose youngest child is kindergarten-aged by 4.3 to 7.1 percentage points. We find that for mothers whose youngest child is an infant, labor force participation increases by 7.2 to 9.8 percentage points, and for women whose youngest child is 3 to 4 years old labor force participation increases by 5.9 to 7.9 percentage points. The fact that the policies impact the labor supply for mothers of younger-than-kindergarten-age children by even more than for mothers of kindergarten-aged children is important for understanding the full effect of subsidized childcare. This is consistent with a life-cycle model of labor supply where wages and prices in future periods impact mothers' labor force attachment.

Patriarchy, development, and the divergence of women's empowerment

AbstractHow do culture and development interact to determine women's empowerment? I develop a simple model of women's labor supply in which economic development simultaneously reduces the stigma against women working and relaxes the consumption constraint that often forces poor women to work. The model predicts that women's labor supply will follow a U‐shaped relationship, falling and then rising as development proceeds. In addition, in countries with more patriarchal values, women's labor supply will be lower, fall over a greater income range, and then rise more slowly on the upward sloping portion of the curve. I investigate and confirm these predictions in a broad sample of countries employing six different measures of historical patriarchy as well as a composite measure of patriarchal history. These findings indicate that as economic development proceeds, women's labor supply will diverge across countries as differences in the intensity of patriarchal values play an ever larger role in the allocation of women's labor.

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.

Nursing labor supply in Iran: a survey in Shiraz public hospitals in 2022

Background The labor supply of nurses, as one of the main healthcare workers, is an important issue in health human resources planning in all health systems. Finding the factors affecting it, could help policymakers to solve the shortage of nursing work supply. The present study aimed to investigating the quantity and factors affecting the nurses' labor supply in Iran.MethodIn this cross-sectional study, a sample of 598 nurses working in public hospitals of Shiraz (Iran) were selected via proportionate stratified random sampling method. The required data was collected using a structured questionnaire which asked working hours and other related factors. To analyze the data, descriptive statistics, univariate analysis and multivariate linear regression were performed using STATA 15. The multivariate labor supply model was estimated separately for married and single nurses. ResultsThe average weekly working hours of nurses was 54.65 h in all medical centers and 50.28 h in the main hospital. The regression results showed that the labor supply of nurses with work experience (β = − 0.368, P = 0.014), satisfaction with work shift arrangement (β = − 2.473, P = 0.001), income between 60-89 million rial (β = − 14.046, P = 0.002), income between 90-119 million rial(β = − 12.073, P = 0.012), and working in the emergency department (β = − 5.043, P = 0.017) had negative and significant relationship; But there was a positive and significant relationship with satisfaction of the work environment (β = 1.86, P = 0.011), workload at work (β = 1.951, P = 0.023) and employment status (contractual employees) (β = 4.704, P = 0.004).ConclusionThe labor supply function of nurses is affected by demographic, economic and non-economic factors. The most contributing factors were related to non-economic variables. It seems that the non-financial cost and benefits related to the job as well as internal factors have more important role on the nurses' labor supply.

The Triple Day Thesis Versus Neoclassical Models of Labour Supply: Alternative Perspectives and Policies

ABSTRACT In this theoretical paper, we respond to the Triple Day Thesis (TDT) by positioning it within the context of the neoclassical labour supply literature and existing public policy. The TDT applies a theoretical lens to the practical experiences of mothers as they distribute time between self-reproductive, reproductive, and waged work. Self-reproductive work refers to self-care, self-investment, and self-realizable activities, including time for good sleep, schooling, and intellectual and social engagements that promote mothers’ human development and well-being. The TDT identifies the Triple Day Problem (TDP) as the lack of freedom or inability of mothers to engage in self-reproductive work as they balance the increasing demands of reproductive work with waged work and proposes Motherhood Compensation as a social policy solution. In this paper, we demonstrate that the existence of the TDP can be used to explain persistent gender differences in labour force participation. We envision the TDT as a novel theoretical approach to promoting mothers’ labour force participation and social mobility through self-reproductive work. We suggest that Motherhood Compensation can be created from a mix of already existing family programs, including paid leave, parental allowance, and cash transfer programs.

The Heterogeneous Effects of Social Assistance and Unemployment Insurance: Evidence from a Life Cycle Model of Family Labor Supply and Savings

We empirically analyze the heterogeneous welfare effects of unemployment insurance and social assistance. We estimate a structural life cycle model of singles’ and married couples’ labor supply and savings decisions. The model includes heterogeneity by age, education, wealth, sex, and household composition. In aggregate, social assistance dominates unemployment insurance; however, the opposite holds true for married men, whose leisure time declines more than that of their spouses when unemployment insurance is reduced. A revenue-neutral rebalancing of social support away from unemployment insurance and toward social assistance increases aggregate welfare. Income pooling in married households decreases the welfare value of social assistance. (JEL D13, D15, G51, I38, J22, J64, J65)

Frisch elasticities in a model of indivisible labor supply with endogenous workweek length

AbstractIn this paper, I provide an extension of the classical indivisible labor supply model where a large macro Frisch elasticity is reconciled with a small micro counterpart. Households take as given state‐dependent hours per worker – shaped by a nonlinear mapping from hours worked to labor services and employment frictions – and make intertemporal labor supply decisions. In the standard indivisible labor supply model, aggregate fluctuations are independent of the individual preference parameter that governs the intensive‐margin elasticity. In my model, however, they are connected through the extensive margin whose elasticity is empirically reasonable and is shaped by the individual preference parameter.

Payment schemes in online labour markets. Does incentive and personality matter?

ABSTRACT Online labor markets have gained significant importance in recent years, drawing considerable attention in academia and practice. These platforms enable workers worldwide to sell their labor services to a global pool of clients. However, the challenge lies in motivating workers effectively to enhance their productivity. To address this issue, we employ the self—determination theory and present a model that elucidates motivation's impact on productivity across various payment schemes. Additionally, we leverage the psychological trait theory and its suggested taxonomy to explore how compensation policies in online labor markets affect incentives differently based on individual differences. Our experiment tests predictions from a formal labor supply and productivity model for workers with varying compensation levels. The results indicate that intrinsic workers exhibit higher productivity when bonus rewards are introduced. Furthermore, our study confirms the presence of heterogeneous personality effects, emphasizing that increased worker productivity is primarily associated with conscientiousness and agreeableness traits. These findings illuminate the intricate mechanisms governing worker motivation and engagement in paid crowdsourcing environments. They provide valuable theoretical and managerial insights for researchers and crowdsourcing practitioners aiming to enhance worker productivity in online tasks.

Hours risk and wage risk: repercussions over the life cycle*

AbstractWe decompose earnings risk into contributions from hours and wage shocks. To distinguish between hours shocks, modeled as innovations to the marginal disutility of work, and labor supply reactions to wage shocks, we formulate a life‐cycle model of consumption and labor supply. For estimation, we use data on married American men from the Panel Study of Income Dynamics. Permanent wage shocks explain 31 percent of total risk, permanent hours shocks 21 percent. Progressive taxation attenuates cross‐sectional earnings risk, but its life‐cycle insurance impact is much smaller. At the mean, a one‐standard‐deviation hours shock raises lifetime income by 11 percent, a wage shock by 13 percent.

Understanding multi-homing and switching by platform drivers

Freelance drivers in the shared mobility market frequently switch or work for multiple platforms, affecting driver labor supply. Due to the importance of driver labor supply for the shared mobility market, understanding drivers’ switching and multi-homing behavior is vital to managing service quality on – and effective regulation of – mobility platforms. However, a lack of individual-level data on driver behavior has thus far impeded a deeper understanding. This paper taxonomizes and estimates perceived switching and multi-homing frictions on mobility platforms. Based on a structural model of driver labor supply, we estimate switching and multi-homing costs in a platform duopoly using public and limited high-level survey data. Estimated costs are sizeable, and reductions in multi-homing and switching costs significantly affect platform market shares and driver welfare. Driver labor supply elasticity with respect to platform wage is also discussed considering both multi-homing and switching frictions.

Backward-bending labor supply and urban location

This study attempts to combine a labor supply model with a housing location model. We focus on the trade-off between hours of work, commute times, and leisure time as well as the trade-off between the consumption of a good, housing space, and leisure time. We show that both labor supply and urban location choice have an inverted U-shaped relationship regarding the wage rate. These results are empirically shown by using Japanese data on the hours of work and commute times by household income class and on the number of households by income class.

Delay the Pension Age or Adjust the Pension Benefit? Implications for Labor Supply and Individual Welfare in China

We develop and calibrate a life-cycle model of labor supply and consumption to quantify the implications of alternative pension reforms on labor supply, individual welfare, and government budget for Chinas basic old-age insurance program. We distinguish low-skilled and high-skilled individuals, who differ in their preferences, health and labor income dynamics, and medical expense processes. We use the calibrated model to evaluate three potential pension reforms: (i) increasing the pension eligibility age from 60 to 65, but keeping the current pension benefit formula unchanged; (ii) keeping the pension eligibility age at 60, but proportionally lowering pension benefits so that the pension program’s budget is the same as under Reform (i); and (iii) increasing the pension eligibility age to 65 and simultaneously increasing the pension benefits so that individuals of both skill types attain the same individual welfare levels as in the status quo. We find that relative to the baseline, both Reforms (i) and (ii) can substantially improve the budgets of the pension system, but at the cost of substantial individual welfare loss for both skill types. In contrast, we find that Reform (iii) can modestly improve the budget of the pension system while ensuring that both skill types are as well off as in the status quo. We find that Reforms (i) and (ii) slightly increase, but Reform (iii) slightly decreases, the overall labor supply.