Structural Labor Supply Model Research Articles

Evaluating the Cost- Effectiveness of In-Work Benefits: A Simulation Study for Switzerland

AbstractIncome support for working low-income families (the ‘working poor’) is on top of the political agenda in Switzerland. The current social assistance system is considered inadequate to support working poor households. Several European countries have introduced in-work benefits in order to make work pay. Based on a structural labour supply model, this paper provides microsimulation results of the effects of introducing different schemes of in-work benefits. It turns out that adding a minimum hours requirement to the current social assistance system is the most cost-effective reform. Onethird of expected costs can be attributed to behavioural changes in labour supply.

Why Are Mothers Working Longer Hours in Austria than in Germany? A Comparative Microsimulation Analysis*

AbstractLabour force participation rates of mothers in Austria and Germany are similar; however, full‐time employment rates are much higher among Austrian mothers. In order to find out to what extent these differences can be attributed to differences in the tax‐transfer system, we perform a comparative microsimulation exercise. After estimating structural labour supply models for both countries, we interchange two important institutional characteristics of the two countries ‐ namely, (i) the definition of the tax unit within the personal income tax and (ii) the parental leave benefit scheme. As our analysis shows, differences in mothers’employment patterns can partly be explained by the different tax systems: while Germany has a system of joint taxation with income splitting for married couples, Austria taxes everyone individually, which leads to lower marginal tax rates for secondary earners than in the German system.

Did working families' tax credit work? The impact of in-work support on labour supply in Great Britain

In-work benefits are promoted as a way to make low-income families better off without introducing adverse work incentives. In 1999, the structure of in-work benefits in the UK changed, and their generosity almost doubled, through the introduction of Working Families' Tax Credit (WFTC). With micro-data from before and after its introduction, a structural model of labour supply and programme participation estimates that, by 2002, WFTC had increased labour supply of lone mothers by around 5.1 percentage points, slightly reduced labour supply of mothers in couples by 0.6 percentage points, and increased the labour supply of fathers in couples by 0.8 percentage points, compared with the programme that preceded it. Other tax and benefit reforms contemporaneous with WFTC acted to reduce the labour supply of parents, though. Without any form of in-work benefit in the UK, labour force participation by lone mothers would be around 45 percent, rather than the 55 per cent we now observe. Participating in family credit, the UK's in-work programme before October 1999, conferred a utility loss as well as a utility gain from the extra income, but this utility cost of participation was lower in the final year of WFTC than under previous programmes for lone mothers, and no different for individuals in couples: this in itself induced more lone mothers to work.

Physicians' Labour Supply: The Wage Impact on Hours and Practice Combinations

It is a stated aim to improve physician services in underserved sectors and areas. Increased wages is one instrument for boosting the hours provided by the personnel to the prioritized sub-markets. This study applies an econometric framework that allows for non-convex budget sets, non-linear labour supply curves and imperfect markets with institutional constraints. The labour supply decision is viewed as a choice from a set of discrete alternatives (job packages) in a structural labour supply model estimated on Norwegian micro data. An out-of-sample prediction is also presented and evaluated by means of a natural experiment. Copyright 2005 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.

Semiparametric three‐step estimation methods for simultaneous equation systems

AbstractThis paper proposes a new method for estimating a structural model of labour supply in which hours of work depend on (log) wages and the wage rate is considered endogenous. The main innovation with respect to other related estimation procedures is that a nonparametric additive structure in the hours of work equation is permitted. Though the focus of the paper is on this particular application, a three‐step methodology for estimating models in the presence of the above econometric problems is described. In the first step the reduced form parameters of the participation equation are estimated by a maximum likelihood procedure adapted for estimation of an additive nonparametric function. In the second step the structural parameters of the wage equation are estimated after obtaining the selection‐corrected conditional mean function. Finally, in the third step the structural parameters of the labour supply equation are estimated using local maximum likelihood estimation techniques. The paper concludes with an application to illustrate the feasibility, performance and possible gain of using this method. Copyright © 2005 John Wiley & Sons, Ltd.

Work Incentives and Labor Supply Effects of the ‘Mini-Jobs Reform’ in Germany

We analyze the work incentives and labor supply effects of the so-called mini-jobs reform (subsidies of social security contributions to people with low-earnings jobs) introduced in Germany in April 2003. The analysis is based on a structural labor supply model embedded in a detailed tax-benefit microsimulation model for which we use the German Socio-Economic Panel (GSOEP). Our simulation results show that the likely employment effects of the mini-jobs reform will be small. The small positive participation effect is outweighed by a negative hours effect among already employed workers. The fiscal effects of the reform are also likely to be negative. We conclude that the analyzed mini-jobs reform is not an effective policy to increase employment of people with low earnings capacity.

Labour Supply and Childcare for British Mothers in Two-Parent Families: A Structural Approach

We develop and estimate a structural model of labour supply for British two parent families, taking explicit account of the importance of childcare related variables. We find working mothers do not increase their working hours when hourly wages increase, indeed, they are more likely to reduce their hours. The major inducement for working mothers to increase their working hours, that we find, is the provision of high quality formal childcare. Implying that government policy aiming at increasing working hours amongst British mothers of pre-school children may need to focus on the quality as well as the quantity of formal child care that is available.

Single mothers and work

Western countries differ greatly in the extent to which single mothers participate in the labor market, both in absolute terms and relative to other women. Using data for 15 countries from the Luxembourg Income Study, I propose and estimate a simple structural model of labor supply that incorporates the main variables that influence the work decision for single mothers. The results from the structural estimation suggest that a large part of the cross country variation in the employment rates of single mothers can be explained by their different demographic characteristics and by the variation in expected income in the in-work versus out-of-work states. Older and more educated single mothers are more likely to work, while more and younger children reduce the probability of working. Women with higher expected earnings are more likely to work. Higher benefits in the out-of-work state discourage employment, and the opposite is true for in-work benefits. Single mothers with higher income from other sources, including child support, are less likely to work. Even after demographic and income variables are controlled for, the country dummies remain significant and, in some cases, sizeable. This indicates that other variables not explicitly incorporated in the model, such as childcare arrangements or social and cultural backgrounds, may also play a role in explaining the cross-country variation.

Work costs and nonconvex preferences in the estimation of labor supply models

Works costs have not been adequately handled in labor supply estimation, likely due to their complexity. We show that, if work costs are not accounted for in the budget and time constraints in a structural labor supply model, they will be subsumed into the data generating preferences. Even if underlying preferences over consumption and leisure are convex, the presence of unobservable work costs can make these preferences appear nonconvex. However, we show that, under plausible conditions, policy relevant calculations, such as estimates of the effect of tax changes on labor supply and deadweight loss measures, are not affected by the fact that estimated preferences incorporate work costs.

Aides au retour à l'emploi et activité des femmes en couple

<titre>Résumé</titre> Le débat sur les incitations financières à la reprise d’une activité ne s’est pas éteint avec l’instauration de la Prime pour l’emploi. Notamment, le traitement de la dimension familiale dans les aides à l’emploi est un aspect crucial dont les implications sont encore mal connues. Une réforme conditionnée par le niveau de revenu familial, comme la proposition d’Allocation compensatrice de revenu ou le Working Family Tax Credit britannique, impliquerait un effet désincitatif pour les femmes dont le mari est éligible. Pensée originellement comme une mesure individuelle, la Prime pour l’emploi comporte elle aussi un plafond d’éligibilité familial. À l’aide d’un modèle structurel d’offre de travail, on compare à coûts budgétaires proches les effets potentiels de la PPE version 2003, d’une mesure familiale (l’ACR) et d’une mesure individualisée sur l’offre de travail des femmes mariées.

Nurses??? Labour Supply with an Endogenous Choice of Care Level and Shift Type

It is argued that increasing wages will not only attract more nurses to the health sector, but also increase the number of hours worked for those already there. This article focuses on the response of registered nurses employed in the public sector when they are allowed to endogenously choose between jobs in hospitals and primary care and between day and shift work. A structural labour supply model is estimated on Norwegian micro-data with job-specific wages and hours. The simulation of an overall public wage increase indicates a reduction in total hours. Thus, in contrast to the claim, the income effect seems to dominate in the labour supply of health sector employees.

The choice of paid childcare, welfare, and labor supply of single mothers

This paper considers the simultaneous relationship of a single mother's decision to choose paid childcare, welfare, and labor supply by formulating and estimating a structural labor supply model. The results show that an increase in the social assistance norm has a relatively small effect on paid childcare utilization but a relatively larger effect on the labor supply. In contrast, a reduction of the childcare cost has a relatively large effect on the social assistance utilization but a relatively small effect on the labor supply. Our estimates suggest that a decrease in childcare cost increases the labor supply of those working rather than encouraging nonworkers to start work.

Female Labor Supply and Child Care in France

We use French household data to estimate a structural model of female labor supply and use of paid child care outside the home. Child care costs are found to have little impact on the labor market participation decision of mothers. The model is used to study various policy issues. The influence of the current tax credit on child care expenditures on the mothers’ labor supply is weak. Suppressing the APE (Parental Allowance for the Education) would cause the female participation rate in our sample to rise by 4 points and the proportion of mothers using paid care to rise by 2 points. The responses of women to policy changes are very heterogenous. Macroeconomic changes in female labor supply are equally due to switches between non-participation and participation and switches between working hours by working women.

The Impact of In-Work Benefits on Poverty and Household Labour Supply - a Simulation Study for Switzerland

Income support for low income families (the working poor) is on top of the political agenda in Switzerland. The current social assistance system is considered inadequate to support poor households. Labour unions propose the introduction of a general minimum wage, whereas the Swiss government promotes in-work benefits. Based on a structural labour supply model this paper provides microsimulation results of the effects of introducing different schemes of in-work benefits. It turns out that adding a minimum hours requirement to the current social assistance system is the most cost-efficient reform. Minimum wages are ineffective in fighting poverty.

A structural labour supply model with flexible preferences

We show how non-parametric flexibility can be attained in a structural labour supply model that can be used to analyse all sorts of (non-linear) tax and benefits reforms. The direct utility function is approximated with a series expansion. For given length of the expansion, the model is estimated by smooth simulated maximum likelihood, using Dutch data on labour supply of married females. Estimates of own and cross wage elasticities and tax reform effects suggest that a series expansion of order two is enough. Monte Carlo simulations show that the estimator performs very well, unless there is measurement error in the hours variable.

A Structural Labour Supply Model with Nonparametric Preferences

Nonparametric techniques are usually seen as a statistic device for data description and exploration, and not as a tool for estimating models with a richer economic structure, which are often required for policy analysis. This paper presents an example where nonparametric flexibility can be attained in a fully structural model. A structural labour supply model with a nonparametric specification of preferences is introduced, which can be used for the analysis of all sorts of (non-linear) tax and benefits changes. Moreover, the model can deal with several other problems in estimation of structural labour supply models, such as non-convex tax rules, benefits, unobserved wages of non-workers, and model coherency. The utility maximization problem is solved by discretizing the budget set and choosing the optimal leisure and income combination from a finite set of alternatives. The direct utility function is approximated with a series expansion. For a given length of the expansion, the model is estimated by smooth simulated maximum likelihood. The wage equation is estimated jointly with the labour supply model, and measurement errors in wage rates are allowed for. The model is estimated with Dutch data on labour supply of married females, for various lengths of the series expansion. Estimates of labour supply elasticities and effects of a proposed tax reform suggest that the results do not change much once the order of the series expansion is extended beyond two, even though the second order model is statistically rejected against higher order models. Monte Carlo simulations are used to show that the estimation strategy has remarkably good finite sample properties for the size of our sample. On the other hand they lead to some concern about the potential bias to measurement error in the hours variable.

A Structural Model of Multiple Welfare Program Participation and Labor Supply

Work on estimating the labor supply effects of high marginal tax rates in welfare programs has been hindered by the difficulty of estimating the effects of participation in multiple welfare programs simultaneously. The authors solve this problem by applying methods of simulation estimation to a model of labor supply and multiple program participation. The results show asymmetric wage and tax rate effects, with fairly large wage elasticities of labor supply but very inelastic responses to moderate changes in cumulative marginal tax rates, implying that high welfare tax rates do not necessarily induce major reductions in work effort. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Tax Credits, Labor Supply, and Child Care

We explore the impact of the child care tax credit in the U.S. income tax system on the labor supply decisions of married women with young children by incorporating the cost of child care into a structural labor supply model. Using data from the 1986 NLSY, we find that government subsidies to child care increase labor supply substantially. Our policy simulations show that an increase in the value of the child care tax credit (i.e., percent of expenditures subsidized) would have a much larger effect on labor supply than an increase in the annual expenditure limits of the subsidy or making the subsidy refundable.

A Structural Model of Child Care and the Labor Supply of Married Women

This article empirically examines married women's labor supply and child care expenditures. The article uses winter 1984-85 data from the Survey of Income and Program Participation to estimate a fully structural econometric model of labor supply and paid care utilization. Estimation results indicate that the cost of paid care has small negative effects on labor supply but stronger negative effects on paid care utilization. Consequently, subsidy programs such as the Child and Dependent Care Tax Credit appear to have few effects on married mothers' employment.

Coherency and estimation in simultaneous models with censored or qualitative dependent variables

This paper concerns estimation and inference in simultaneous limited dependent variable or simultaneous qualitative dependent variable models. We discuss the implications of the coherency condition which is required to ensure a unique implicit reduced form in such nonlinear models. A number of model specifications are examined, including the Simultaneous Prohit, Simultaneous Tohit, and Simultaneous Generalised Selectivity models, and we consider the usefulness of a conditional maximum likelihood (CML) methodology. We obtain a simple consistent estimator which is a natural counterpart to the CML estimator for standard simultaneous models. An application to a structural model of household labour supply is presented.