Total Labor Supply Research Articles

Dangerous flexibility – retirement reforms reconsidered

Flexible retirement is supposed to increase labor supply of older workers without touching the third rail of pension politics, the highly unpopular increase of the retirement age. While this may have intuitive appeal, this paper shows that it might be wishful thinking. Economic theory tells us that flexible retirement policies can have a zero or positive effect on labor force participation while the effect on hours worked can be positive or negative depending on the distribution of leisure preferences. Thus, the overall effect is ex ante unclear. Empirical results from nine OECD countries show that the effect on labor force participation is ex post small and positive while the effect on hours worked is negative. Overall, there is no evidence of the desired positive effect on total labor supply, rather, we see evidence of a dangerous decline in total labor supply. We conclude that the flexibility reforms enacted so far have failed to increase old-age labor supply and delineate several alternative options to achieve this aim.

Randomizing Religion: The Impact of Protestant Evangelism on Economic Outcomes

We study the causal impact of religiosity through a randomized evaluation of an evangelical Protestant Christian values and theology education program delivered to thousands of ultra-poor Filipino households. Six months after the program ended, treated households have higher religiosity and income; no statistically significant differences in total labor supply, consumption, food security, or life satisfaction; and lower perceived relative economic status. Exploratory analysis suggests that the income treatment effect may operate through increasing grit. Thirty months after the program ended, significant differences in the intensity of religiosity disappear, but those in the treatment group are less likely to be Catholic and more likely to be Protestant, and there is some mixed evidence that their consumption and perceived relative economic status are higher. We conclude that this church-based program may represent a method of increasing non-cognitive skills and reducing poverty among adults in developing countries.

Gradual retirement, financial incentives, and labour supply of older workers: Evidence from a stated preference analysis

Using data from a stated preferences experiment in the Netherlands, we find that replacing full-time pension schemes with schemes that offer gradual retirement opportunities induce workers to retire one year later on average. Total lifetime labour supply, however, decreases by 3.4 months, because the positive effect of delayed retirement on labour supply is cancelled out by a reduction in working hours in the years before full retirement. The impact of gradual retirement schemes is, however, heterogeneous across groups of workers. Workers in bad health who gain access to gradual retirement postpone their retirement by 1.7 months more than workers in good health. This suggests that introduction of gradual retirement alleviates, to a certain extent, the health-related burden that employees in poor health may experience in carrying out their work. Nevertheless, introduction of gradual retirement reduces the total labour supply of both groups of workers. Financial incentives, either in terms of changing pension income or the price of leisure, also affect expected retirement age, but the impact of these financial incentives does not differ with the possibility of gradual retirement. Finally, we find that gradual retirement is not a preferred option among workers, as the large majority prefers full retirement.

Aggregating Elasticities: Intensive and Extensive Margins of Women's Labor Supply

We show that there is substantial heterogeneity in women's labor supply elasticities at the micro level and highlight the implications for aggregate behavior. We consider both intertemporal and intratemporal choices, and identify intensive and extensive responses in a consistent life‐cycle framework, using US CEX data. Heterogeneity is due to observables, such as age, wealth, hours worked, and the wage level, as well as to unobservable tastes for leisure: the median Marshallian elasticity for hours worked is 0.18, with corresponding Hicksian elasticity of 0.54 and Frisch elasticity of 0.87. At the 90th percentile, these values are 0.79, 1.16, and 1.92. Responses at the extensive margin explain about 54% of the total labor supply response for women under 30, although this declines with age. Aggregate elasticities are higher in recessions, and increase with the length of the recession. The heterogeneity at the micro level means that the aggregate labor supply elasticity is not a structural parameter: any aggregate elasticity will depend on the demographic structure of the economy as well as the distribution of wealth and the particular point in the business cycle.

Livelihood Diversification Strategies to Climate Change among Smallholder Farmers in Northern Ghana

AbstractEmploying the Margalef index of diversification, the linear regression model and three‐step feasible generalised least square, we analyse the impact of climate variability and expectation on the diversification strategies and vulnerabilities of rural households in Northern Ghana. The finding indicates households have diversified on and off the farm. The decrease average rainfall increases the diversification of total labour and female labour supply whilst decreasing diversification of cropland and income. Higher average rainfall lowers mean and variable per capita consumption. Extension service is an effective policy variable under high climate variability. We recommend increasing extension services and women economic empowerment. Copyright © 2017 John Wiley & Sons, Ltd.

Declined effectiveness of fiscal and monetary policies faced with aging population in Japan

This paper studies how population aging affects economic performance and the effectiveness of fiscal and monetary policies. We develop a New Keynesian dynamic stochastic general equilibrium model with heterogeneous households: workers and retirees. We demonstrate that an increase in the proportion of working population increases aggregate output, consumption, and investment by increasing total labor supply in the long run. It also increases wages and reduces the social security burden of the government. This paper also finds that the effectiveness of fiscal and monetary policies is weakened when the proportion of retirees becomes larger.

Labour Supply and Commuting: Implications for Optimal Road Taxes

A new paradigm for transport economists has been established: revenues of a welfare-maximising road tax should be employed to reduce the level of a distortionary income tax. An essential assumption to reach this conclusion is that the number of workdays is optimally chosen, whereas daily workhours are fixed, implying that given a road tax, workers may only reduce their commuting costs by reducing total labour supply. However, a labour supply model which also allows for optimally chosen daily hours implies that commuting costs increase daily hours, whereas the effect on total labour supply is ambiguous. This paper addresses this issue empirically by analysing the relationship between labour supply patterns and commuting distance using the socio-economic panel data for Germany between 1997 and 2007. Endogeneity of commuting distance is accounted for by using employer-induced changes in commuting distance. In line with the theoretical model developed, we find that commuting distance has a positive effect on daily hours. Our analysis does not find a negative effect of commuting distance on total labour supply, suggesting that a reduction in the income tax, as advocated in the literature, may not be necessary.

Gradual Retirement, Financial Incentives, and Labour Supply of Older Workers: Evidence from a Stated Preference Analysis

Using data from a stated preferences experiment in the Netherlands, we find that replacing full-time pension schemes with schemes that offer gradual retirement opportunities induce workers to retire one year later on average. Total life-time labour supply, however, decreases with 3.4 months because the positive effect of delayed retirement on labour supply is cancelled out by the reduction in working hours before full retirement. The impact of gradual retirement schemes is, however, heterogeneous across groups of workers. Workers with non-routine job tasks retire at a later age when they can gradually retire. Financial incentives, either in terms of changing pension income or the price of leisure, also affect the expected retirement age, but the impact of these financial incentives does not differ with the possibility of gradual retirement. Finally, we find that gradual retirement is not a preferred option among workers as the large majority still prefers full retirement. This especially holds for workers with a lower wage and those with higher life expectancy.

Gradual Retirement, Financial Incentives, and Labour Supply of Older Workers: Evidence from a Stated Preference Analysis

Using data from a stated preferences experiment in the Netherlands, we find that replacing full-time pension schemes with schemes that offer gradual retirement opportunities induce workers to retire one year later on average. Total life-time labour supply, however, decreases with 3.4 months because the positive effect of delayed retirement on labour supply is cancelled out by the reduction in working hours before full retirement. The impact of gradual retirement schemes is, however, heterogeneous across groups of workers. Workers with non-routine job tasks retire at a later age when they can gradually retire. Financial incentives, either in terms of changing pension income or the price of leisure, also affect the expected retirement age, but the impact of these financial incentives does not differ with the possibility of gradual retirement. Finally, we find that gradual retirement is not a preferred option among workers as the large majority still prefers full retirement. This especially holds for workers with a lower wage and those with higher life expectancy.

Physicians' engagement in dual practices and the effects on labor supply in public hospitals: results from a register-based study.

BackgroundPhysician dual practice, a combination of public and private practice, has attracted attention due to fear of reduced work supply and a lack of key personnel in the public system, increase in low priority treatments, and conflicts of interest for physicians who may be competing for their own patients when working for private suppliers. In this article, we analyze both choice of dual practice among hospital physicians and the dual practices’ effect on work supply in public hospitals.MethodsThe sample consisted of 12,399 Norwegian hospital physicians working in public hospitals between 2001 and 2009. We linked hospital registry data on salaries and hospital working hours with data from national income and other registries covering non-hospital income, including income from dual work, cohabiting status, childbirths and socioeconomic characteristics. Our dataset also included hospital variables describing i.e. workload. We estimated odds ratio for choosing dual practice and the effects of dual practice on public working hours using different versions of mixed models.ResultsThe percentage of physicians engaged in dual practice fell from 35.1% for men and 17.6% for women in 2001 to 25.0% and 14.2%, respectively, in 2009. For both genders, financial debt and interest payments were positively correlated and having a newborn baby was negatively correlated with engaging in dual practice. Larger family size and being cohabitating increased the odds ratio of dual practice among men but reduced it for women. The most significant internal hospital factor for choosing dual practice was high wages for extended working hours, which significantly reduced the odds ratio for dual practice. The total working hours in public hospitals were similar for both those who did and did not engage in dual practice; however, dual practice reduced public working hours in some specialties.ConclusionEconomic factors followed by family variables are significant elements influencing dual practice. Although our findings indicate that engagement in dual practice by public hospital physicians in a well-regulated market may increase the total labor supply, this may vary significantly between medical specialties.

Full Childcare Coverage: Higher Maternal Labour Supply and Childcare Usage?

According to many studies, childcare is important for its pedagogical, economical and social function for both children and parents. However, many households are still confronted with availability constraints in childcare. In the recent past, many governments implemented policy reforms in order to increase the coverage rate of childcare. The empirical part of this paper focuses on the Flemish childcare market and analyzes how maternal labour supply and childcare usage is aected by a new Flemish decree which provides full childcare coverage. This paper adopts a modeling framework for analyzing labour supply developed by Aaberge, Colombino and Strom (1999) and Dagsvik (1994). To account for the possible interaction between labour supply and childcare choices the model also treats childcare type as an endogenous variable. The results of the policy reform analysis show that households switch to formal childcare when confronted with higher childcare availability. Total labour supply also increases but these eects are less pronounced as some households also reduce working hours.

Migrations internationales et marché du travail dans l'UE15 : enseignements des modèles à proportions de facteurs

This article quantifies the impact of immigration and emigration on wages and employment rates of natives in the EU15 member states. The analysis is based on the generally admitted model of factor shares with endogenous total productivity and labor supply. For all EU15 member states, simulations show that immigration has generated effects which are positive but weak on wages and negligible on employment rates. That result is robust to the choice of parameters, the period under investigation, the introduction of illegal immigration and the heterogeneous quality of diplomas. In contrast, immigration reduces natives' wage, especially that of least skilled people. © De Boeck Superieur. Tous droits reserves pour tous pays.

Modelling the Effects of Immigration on Regional Economic Performance and Wage Distribution: A Computable General Equilibrium (CGE) Analysis of Three European Union Regions

Pouliakas K., Roberts D., Balamou E. and Psaltopoulos D. Modelling the effects of immigration on regional economic performance and wage distribution: a computable general equilibrium (CGE) analysis of three European Union regions, Regional Studies. The paper uses a regional computable general equilibrium (CGE) model to analyse the effects of immigration on three small remote European Union regions located within Scotland (UK), Greece and Latvia. Two migration scenarios are assessed. In the first, total labour supply is affected. In the second, the importance of migratory flows by differential labour skill types is investigated. The results indicate significant differences in the extent to which regional economies are affected by immigration. They also suggest that remote regions are highly vulnerable to the out-migration of skilled workers (‘brain-drain’), while the in-migration of unskilled workers leads to widening wage inequality.

In-Work Tax Credits in Belgium: An Analysis of the Jobkorting Using a Discrete Labour Supply Model

In line with the Earned Income Tax Credit in the United States and the Working Family Tax Credit in the United Kingdom, the Flemish government implemented in 2007 a similar in-work tax credit in order to increase the employment rate and to make working financially more attractive. This paper investigates how total labour supply changes and checks if the cost reductions due to these behavioral reactions are large enough to defend such expensive policies. It appears that married women alter their labour supply decision the most. However, due to the small tax credit, total labour supply effects are of minor size and hardly offset the large costs. Only a more generous tax credit leads to a higher activation of unemployed, however the budgetary cost is huge.

China has reached the Lewis turning point

In the past several years, labor shortage in China has become an emerging issue. However, there is heated debate on whether China has passed the Lewis turning point and entered a new era of labor shortage from a period of unlimited labor supply. Most empirical studies on this topic focus on the estimation of total labor supply and demand. Yet the poor quality of labor statistics leaves the debate open. In this paper, China's position along the Lewis continuum is examined though primary surveys of wage rates, a more reliable statistic than employment data. Our results show a clear rising trend of real wages rate since 2003. The acceleration of real wages even in slack seasons indicates that the era of surplus labor is over. This finding has important policy implications for China's future development model. ► This paper examines the Lewis turning point using primary village surveys over different periods. ► Rural wage has accelerated since 2003 in both harvest and slack seasons. ► Male and female wages have experienced the same trend – slow growth prior to 2003 and a rapid increase since 2003. ► The era of surplus labor is over.

Labour Supply and Commuting

A new paradigm for transport economists has been established: revenues of a welfare-maximising road tax should be employed to reduce the level of a distortionary income tax. An essential modelling assumption to reach this conclusion is that the number of workdays is optimally chosen, whereas daily workhours are fixed, implying that given a road tax, workers may only reduce their commuting costs by reducing total labour supply. However, a labour supply model which also allows for optimally chosen daily hours implies that commuting costs increase daily hours, whereas the effect on total labour supply is ambiguous. This paper addresses this issue empirically by analysing the relationship between labour supply patterns and commuting distance using the socio-economic panel data for Germany between 1997 and 2007. Endogeneity of commuting distance is accounted for by using employer-induced changes in commuting distance. In line with the theoretical model developed, we find that commuting distance has a positive effect on daily hours. Our analysis does not find a negative effect of commuting distance on total labour supply, suggesting that a reduction in the income tax, as advocated in the literature, may not be necessary.

Income Support Systems, Labor Market Policies and Labor Supply: The German Experience

In view of the demographic trends, most EU countries face the problem of a declining work force in the future. Understanding the interaction between income support systems (such as unemployment benefits, social assistance, early retirement and pension systems) and total labor supply is of crucial importance to combat problems and ensure economic growth in the future. The German labor market has been plagued by high and persistent unem­ployment in the last two decades in combination with a relatively low labor force participation of women. This created a situation where labor market reforms were unavoidable. The speed and depth of the reforms are remark­able, mainly aimed at activating people by increasing their incentives to take up work. The aim of this paper is to give a brief overview of the German income support systems and labor market polices, their recent reforms and—where already possible—effects of these reforms. Overall, Germany seems to be on the right track. The recent reforms helped to tackle some labor market problems but also created high political unrest. It remains to be seen how future governments react to worsened economic conditions in light of these experiences.

The Long-Term Effects of Unemployment Insurance: Evidence from New Brunswick and Maine, 1940–1991

Using data spanning half a century for adjacent jurisdictions in the United States and Canada, the authors study the long-term effects of a generous unemployment insurance (UI) program on the distribution of weeks worked. They find substantial effects. For example, in 1990, about 12.6% of working-age men in Maine's northernmost counties worked between 1 and 39 weeks; just across the border in New Brunswick, the figure was 25.6%. According to the estimates, New Brunswick's much more generous UI system accounts for more than three-fourths of this differential. In part because part-year workers are drawn from both ends of the distribution of annual weeks worked (0 weeks and 40–52 weeks), the generosity of New Brunswick's program had only modest estimated effects on total labor supply, even as it substantially increased UI program participation and expenditures.

Growth, economic structure, and residential distribution of a small city

This article presents a growth model of a small open city with economic structure and geography. The city which is located along a line segment has three, industrial, services and housing, sectors. The spatial growth model of a small city synthesizes the main ideas in some important models in the neoclassical growth theory, urban economics, and the literature of economic growth of small open economies. We show that the dynamic system has a unique equilibrium. We also simulate the motion of the urban economy over time and space. The unique feature of our approach is to treat production activities, economic structure, residential distribution, capital accumulation, and consumption on the basis of microeconomic mechanism as an integrated whole. Our simulation provides some important insights into the processes of the urban economic growth. For instance, under certain conditions, when the industrial sector’s productivity is increased, the wage rate, price of services, capital intensities of the services and industrial sectors, and per-worker output levels of the two sectors are increased. The total labor supply, the capital stocks employed by the three sectors and the labor forces by the service and industrial sectors are all increased. The shares of the three sectors are not affected by the technological change in the long term, even though the shares are initially affected. The per capita consumption level of the industrial goods rises and the consumption level of services falls. The land and housing rents are increased and the consumption of housing per household falls. Moreover, the current account balance tends to be more in surplus and the growth rate is increased.

Modelling the Effects of Immigration on Regional Economic Performance and the Wage Distribution: A Cge Analysis of Three EU Regions

The paper uses a regional Computable General Equilibrium (CGE) model to analyse the effects of immigration on three small remote EU regions located within Scotland, Greece and Latvia. Two migration scenarios are assessed. In the first, total labour supply is affected. In the second, the importance of migratory flows by differential labour skill types is investigated. The results indicate significant differences in the extent to which regional economies are affected by immigration. They also suggest that remote regions are highly vulnerable to the out-migration of skilled workers (‘brain-drain’) while the in-migration of unskilled workers leads to widening wage inequality.