Structural Labor Supply Model Research Articles

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.

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.

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.

Hypothetical Tax-Benefit Reforms in Hungary: Shifting from Tax Relief to Cash Transfers for Family Support

ABSTRACT This paper evaluates two hypothetical budget-neutral reforms that shift resources from family tax expenditures to family cash transfers. We evaluate these reforms using a structural labor supply model based on the microsimulation EUROMOD model and EU-SILC data. We find that both reforms have an inequality-decreasing impact. However, when looking at labor supply responses for different household types, we show that the reforms have a non-negligible impact, especially for females in couple households. Additionally, we show that females in the middle of the income distribution in particular reduce labor supply in response to the reforms.

The effectiveness of fiscal stimuli for working parents

Child care subsidies and in-work benefits are prominent policies used to promote the labor participation of parents. We study these policies in a structural model of labor supply and child care use for couples in the Netherlands. Major reforms in family policies benefit the identification. We use differences-in-differences to assess the reliability of the model predictions. In-work benefits for secondary earners that increase with income are shown to be the most cost-effective tool for stimulating parental labor supply. Child care subsidies are less effective, as substitution of informal for formal care drives up public expenditures. We also relate our findings to related policies in the UK and US.

Do disability benefits hinder work resumption after recovery?

While a large share of Disability Insurance recipients in OECD countries are expected to recover, outflow rates from temporary disability schemes are typically negligible. We estimate the disincentive effects of disability benefits on the response to a (mental) health improvement using administrative data on all Dutch disability benefit applicants. We compare those below the DI eligibility threshold with those above and find that disincentives significantly reduce work resumption after health improves. Approximately half of the response to recovery is offset by benefits. Estimates from a structural labor supply model suggest that disincentives are substantially larger when the worker’s earnings capacity is fully restored.

Banking Access and Racial Inequality: Wealth and Human Capital Accumulation of Young Men

There are large racial differences in access to the financial system among young adults. Lack of access to savings and investment opportunities results in low financial returns on savings. Low returns, in turn, reduce ex-ante incentives to save, work, and invest in human capital. Using a structural model of schooling, labor supply, and savings with unequal financial access and endogenous borrowing constraints, I quantify the effects of racial differences in financial access and labor market discrimination on the observed racial wealth gap. Counterfactual policy experiments suggest that a financial inclusion policy that provides full access increases African American youths’ median net worth level and reduces racial wealth inequality. In comparison, a college tuition reduction policy is less effective in reducing wealth inequality.

Do Disability Benefits Hinder Work Resumption After Recovery?

While a large share of Disability Insurance recipients are expected to recover, outflow rates from temporary disability schemes are typically negligible. We estimate the disincentive effects of disability benefits on the response to a (mental) health improvement using administrative data on all Dutch disability benefit applicants. We compare those below the DI eligibility threshold with those above and find that disincentives significantly reduce work resumption after health improves. Approximately half of the response to recovery is offset by benefits. Structural labor supply model estimates suggest disincentive effects are substantially larger when the workers’ earnings capacity is fully restored.

Reconciling Changes in Wage Inequality with Changes in College Selectivity Using a Behavioral Model

We estimate a structural dynamic Roy model of education, labor supply and earnings on the 1979 and 1997 cohorts of males taken from the National Longitudinal Survey of Youth (NLSY) and evaluate to what extent changes in education and labor supply decisions across cohorts have been explained by changes in i) the college premium, ii) the utility of attending higher education, iii) grade progression standards, and iv) the value of non-market time. We quantify the evolution of the relative and absolute qualities of both college graduates and college attendants (associates). We find that it is impossible to rationalize changes in observed schooling decisions without appealing to a large increase in intrinsic taste for education, despite a doubling of the cost of college and its impact on debt-load. The population distribution of the college premium has shifted to the right, going from 50% to 58%, while the premium of actual college graduates has shifted to the left, going from 72% to 54%, thereby pointing toward a reduction of the relative quality of college graduates. The absolute quality (human capital) of college graduates has however remained stable. For college attendants (associates), both relative and absolute quality dropped. One implication of the relative flattening of age earnings profiles is the removal of the negative effect of late college graduation on early life-cycle wages. Our estimates indicate it moved from a 4% penalty per year of delay to an insignificant quantity by the early 2000's.

Labour Supply and Childcare: Allowing Both Parents to Choose

AbstractWe develop and estimate a structural model of labour supply for two parent families in Australia, taking explicit account of the importance of childcare related variables. Our main contribution is to consider the labour supply decisions of both parents and their choice of childcare simultaneously. Labour supply decisions of mothers are found to be substantially more responsive to changes in their own wage (at intensive and extensive margins) than is the case for fathers, with minimal cross‐wage labour supply responses from fathers. Our results imply that policies increasing the wage of mothers will be associated with marked increases in labour market participation and in the working hours of mothers in the Australian labour market, with little offsetting decline in the labour supply of fathers.

Understanding joint retirement

Evidence from different sources shows that spouses’ retirement decisions are correlated. Retirement policies affecting individuals in couples are therefore also likely to affect behavior of their spouses. It is therefore important to account for joint features in modeling retirement. This paper studies a structural collective model of labor supply and retirement of both partners in a couple with interdependent preferences, imperfect knowledge of preferences of the spouse, and subjective expectations about the future. We propose a novel method to estimate preferences and the intra-household bargaining process, which relies on stated preferences data collected in the Health and Retirement Study. Respondents were asked to choose between hypothetical retirement trajectories describing the retirement ages and replacement rates of both spouses from three perspectives: considering their own preferences only, the preferences of their spouse only, or the most likely decision for the household. With these data, all model parameters are identified and potential sources of joint retirement can be disentangled. Our results suggest that males misperceive their wives’ preferences, overestimating their disutility of work. Our estimates correct for this. We find strong positive correlations between preferences for joint leisure (leisure complementarity) of the two partners. Counterfactual simulations with stylized retirement paths suggest that the leisure complementarities explain a substantial part of joint retirement, much more than correlation in unobserved heterogeneity or potential wage rates.

The joint decision of female labour supply and childcare in Italy under costs and availability constraints

It is widely recognized that childcare has important pedagogical, economic and social effects on both children and parents. This paper is the first attempt to estimate a joint structural model of female labour supply and childcare behavior applied to Italy in order to analyse the effects of relaxing the existing constraints in terms of childcare availability and costs by considering public, private and informal childcare. Results suggest that Italian households might alter their childcare and labour supply behaviors substantially if the coverage rate of formal childcare increases to reach the European targets. Overall, increasing child care coverage is estimated to be more effective in enhancing labour incentives than decreasing existing child care costs, at the same budgetary cost.

Shifting taxes away from labour enhances equity and fiscal efficiency

This paper analyzes the effects of a hypothetical tax reform in Italy, which makes current tax credits more generous and refundable, shifting the tax burden from labour to property. Our methodology contains novel features of great relevance for policy analysis: first, a structural model of labour supply of both employees and self-employed; second, a labour market equilibrium model that encompasses demand side constraints; last, detailed tax system simulation under fiscal neutrality. The empirical findings provide guidance for policy makers’ actions to enhance equity and efficiency of tax system and confirm the relevance of the methodological approach.

Labour Supply and Childcare: Allowing Both Parents to Choose

We develop and estimate a structural model of labour supply for two parent families in Australia, taking explicit account of the importance of childcare related variables. Our main contribution is to consider the labour supply decisions of both parents and their choice of childcare simultaneously. Labour supply decisions of mothers are found to be substantially more responsive to changes in their own wage (at intensive and extensive margins) than is the case for fathers, with minimal cross-wage labour supply responses from fathers. Our results imply that policies increasing the wage of mothers will be associated with marked increases in labour market participation and in the working hours of mothers in the Australian labour market, with little offsetting decline in the labour supply of fathers.

Semiparametric Estimation of Dynamic Discrete Choice Models

We consider the estimation of dynamic discrete choice models in a semiparametric setting, in which the per-period utility functions are known up to a finite number of parameters, but the distribution of utility shocks is left unspecified. This semiparametric setup differs from most of the existing identification and estimation literature for dynamic discrete choice mod- els. To show identification we derive and exploit a new Bellman-like recursive representation for the unknown quantile function of the utility shocks. Our estimators are straightforward to compute; some are simple and require no iteration, and resemble classic estimators from the literature on semiparametric regression and average derivative estimation. Monte Carlo simulations demonstrate that our estimator performs well in small samples. To highlight features of this estimator, we estimate a structural model of dynamic labor supply for New York City taxicab drivers.

Evaluating a Structural Model of Labor Supply and Welfare Participation: Evidence from State Welfare Reform Experiments

This paper assesses the ability of a structural labor supply model to predict the impacts of a welfare policy change by studying two state welfare reform experiments conducted in Minnesota (MN) and Vermont (VT) during the mid-1990s. I estimate and evaluate a static discrete choice model of labor supply and welfare participation that incorporates heterogeneity in preferences, fixed costs of work, and disutility associated with welfare take-up. Although this type of labor supply models has been commonly estimated and applied to welfare and tax policy simulations, there have been very few attempts to verify the predictive ability of the existing models. I use the experimental impacts of the welfare policy change in each state as a benchmark for the structural model’s predictions. This approach is similar in spirit to LaLonde (1986). The utility parameters of the model are estimated using data from the MN control group. First, based on the parameter estimates, I make predictions regarding labor supply, welfare participation, and government costs under the treatment group program in MN and compare them with the observed effects of the MN experiment. Next, I apply the parameter estimates to the VT control group and compare the predicted and observed impacts of the policy change in VT. The results show that the model fits the estimation sample very well, but is unable to replicate the observed treatment effects on labor supply and welfare participation outcomes of the two experiments. Consequently, the effect on net government costs is under-predicted by 31 to 93 percent in MN. The prediction biases are even larger for the VT sample.

Public, private or both? Analyzing factors influencing the labour supply of medical specialists

AbstractThis paper investigates the factors influencing the allocation of time between public and private sectors by medical specialists. A discrete choice structural labour supply model is estimated, where specialists choose from a set of job packages that are characterized by the number of working hours in the public and private sectors. The results show that medical specialists respond to changes in earnings by reallocating working hours to the sector with relatively increased earnings, while leaving total working hours unchanged. The magnitudes of the own‐sector and cross‐sector hours elasticities fall in the range of 0.16–0.51. The labour supply response varies by gender, doctor’s age and medical specialty. Family circumstances such as the presence of young dependent children reduce the hours worked by female specialists but not male specialists.RésuméPublic, privé ou les deux? Analyse des facteurs influençant l’offre de travail des médecins spécialistes. Ce mémoire étudie les facteurs influençant l’allocation du temps des médecins spécialistes entre le secteur privé et le secteur public. Un modèle structurel de choix discret d’offre de travail est calibré ans lequel les spécialistes choisissent entre des arrangements caractérisés par le nombre d’heures de travail dans le secteur public et le secteur privé. Les résultats montrent que les spécialistes répondent aux changements dans la nature des gains en réaménageant leurs heures de travail vers le secteur qui offre des gains relativement plus élevés, tout en gardant leurs heures totales de travail inchangées. Les magnitudes des élasticités de l’offre des heures à l’intérieur d’un secteur et entre secteurs se situent dans un intervalle entre 0.16‐0.51. La réponse de l’offre de travail varie selon le genre, l’âge et la spécialité. Le cadre familial, comme la présence de jeunes enfants à charge, tend à réduire les heures travaillées par les femmes mais pas pour les hommes.

Grandchildren and their grandparents' labor supply

Working-age grandparents supply large amounts of child care, an observation that raises the question of how having grandchildren affects grandparents' own labor supply. Exploiting the unique genealogical design of the PSID and the random variation in the timing when the parents of first-born boys and girls become grandparents, we estimate a structural labor supply model and find a negative effect on employed grandmother's hours of work of about 30% that is concentrated near the bottom of the hours distribution, i.e., among women less attached to the labor market. Implications for the evaluation of child care and parental leave policies are discussed.

How Taxes and Welfare Benefits Affect Work Incentives: A Life‐Cycle Perspective

AbstractPersonal taxes and benefits affect the incentive to work over the life cycle by altering income–age profiles, insuring against adverse shocks and changing the returns to human capital. In this paper, we show how a life‐cycle perspective alters our impression of how the UK tax and benefit system affects women's work incentives. Given that actual longitudinal data conflate age effects, cohort effects and policy effects, and, in the UK, are not available covering the full life cycle, we use simulated data produced by a rich, dynamic structural model of female labour supply and human capital that incorporates family formation and fertility. We find that individuals experience considerable variability in work incentives across life that outweighs the variability across individuals. Changes in the presence of children and a partner, as well as the level of any partner's earnings, are key to explaining these patterns: work incentives vary dramatically depending on family composition and the earnings of any partner, especially for the lower‐skilled, and most women experience a number of different family types during the course of their lives.

Structural Labour Supply Models and Microsimulation

The purpose of the paper is to provide a discussion of the various approaches for accounting for labour supply responses in microsimulation models. The paper focus attention on two methodologies for modelling labour supply: 1) The discrete choice model. 2) The random utility – random opportunities model The paper then describes approaches to utilising these models for policy simulation in terms of producing and interpreting simulation outcomes, outlining an extensive literature of policy analyses utilising these approaches. Labour supply models are not only central for analyzing behavioural labour supply responses but also for identifying optimal tax-benefit systems, given some of the challenges of the theoretical approach. Combining labour supply results with individual and social welfare functions enables the social evaluation of policy simulations. Combining welfare functions and labour supply functions, the paper discusses how to model socially optimal income taxation.