Adjustment Costs Firm Responses And Micro Vs Macro Labor Supply Elasticities
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| Release | : 2009 |
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Abstract: We show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms. We develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs. In this model, micro elasticities are smaller than macro elasticities because they do not account for adjustment costs and firm responses. We present evidence supporting three predictions of the model by analyzing bunching at kinks using the universe of tax records in Denmark. First, larger kinks generate larger taxable income elasticities because they are more likely to overcome search costs. Second, kinks that apply to a larger group of workers generate larger elasticities because they induce changes in hours constraints. Third, firms tailor job offers to match workers' aggregate tax preferences in equilibrium. Calibrating our model to match these empirical findings, we obtain a lower bound on the intensive-margin macro elasticity of 0.34, an order of magnitude larger than the estimates obtained using standard microeconometric methods for wage earners in our data.
| Author | : Henrik Kleven |
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| Total Pages | : 0 |
| Release | : 2023 |
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A key contention in economics is the discrepancy between micro and macro elasticities of labor supply with respect to marginal tax rates. We revisit this question, focusing on the role of dynamic returns to effort among top earners. We develop a new model of earnings responses to taxes in the presence of dynamic returns. In this model, the returns to effort are delayed and mediated by job switches such as promotions within firms or movements between firms. Short-run micro elasticities are attenuated relative to the true long-run macro elasticity. We proceed by providing two main empirical analyses using rich administrative data from Denmark. The first part presents descriptive evidence on earnings and hours-worked patterns over the lifecycle that confirm the predictions of the theoretical model. The second part presents quasi-experimental evidence on earnings responses to taxes using discrete job switches. The empirical strategy is informed by the theoretical model, according to which job switches can be used to (partially) identify the macro elasticity of labor supply. The evidence shows that, at the top of the distribution, macro elasticities are much larger than micro elasticities due to dynamic compensation effects.
| Author | : Michael P. Keane |
| Publisher | : |
| Total Pages | : 113 |
| Release | : 2011 |
| Genre | : Economics |
| ISBN | : |
The response of aggregate labor supply to various changes in the economic environment is central to many economic issues, especially the optimal design of tax policies. This paper surveys recent work that uses structural models and micro data to evaluate the size of this response. Whereas the earlier literature on this issue often concluded that aggregate labor supply elasticities were small, recent work has identified three key reasons that the aggregate elasticity may be quite large. First, earlier estimates abstracted from several key features, including human capital accumulation, leading to estimates that are dramatically negatively biased. Second, failure to understand that aggregate labor supply adjustments can occur along both the hours per worker and employment margins has led economists to misinterpret the implications of previous estimates for aggregate labor supply. Third, structural estimation of responses along the extensive (i.e., employment) margin are typically quite large.
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| Release | : 2011 |
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| Author | : Sónia Félix |
| Publisher | : International Monetary Fund |
| Total Pages | : 57 |
| Release | : 2019-12-13 |
| Genre | : Business & Economics |
| ISBN | : 1513521519 |
This paper studies the macroeconomic effect and underlying firm-level transmission channels of a reduction in business entry costs. We provide novel evidence on the response of firms' entry, exit, and employment decisions. To do so, we use as a natural experiment a reform in Portugal that reduced entry time and costs. Using the staggered implementation of the policy across the Portuguese municipalities, we find that the reform increased local entry and employment by, respectively, 25% and 4.8% per year in its first four years of implementation. Moreover, around 60% of the increase in employment came from incumbent firms expanding their size, with most of the rise occurring among the most productive firms. Standard models of firm dynamics, which assume a constant elasticity of substitution, are inconsistent with the expansionary and heterogeneous response across incumbent firms. We show that in a model with heterogeneous firms and variable markups the most productive firms face a lower demand elasticity and expand their employment in response to increased entry.
| Author | : Richard Blundell |
| Publisher | : Oxford University Press |
| Total Pages | : 485 |
| Release | : 2016 |
| Genre | : Business & Economics |
| ISBN | : 0198749805 |
Presents Richard Blundell's outstanding research on the modern economic analysis of labour markets and public policy reforms and brings together, in revised and integrated form, a number of the author's key papers.
| Author | : Pierre Cahuc |
| Publisher | : MIT Press |
| Total Pages | : 1081 |
| Release | : 2014-08-15 |
| Genre | : Business & Economics |
| ISBN | : 0262325543 |
The new edition of a widely used, comprehensive graduate-level text and professional reference covering all aspects of labor economics, with substantial new material. This landmark graduate-level text combines depth and breadth of coverage with recent, cutting-edge work in all the major areas of modern labor economics. Its command of the literature and its coverage of the latest theoretical, methodological, and empirical developments make it also a valuable resource for practicing labor economists. This second edition has been substantially updated and augmented. It incorporates examples drawn from many countries, and it presents empirical methods using contributions that have proved to be milestones in labor economics. The data and codes of these research publications, as well as numerous tables and figures describing the functioning of labor markets, are all available on a dedicated website (www.labor-economics.org), along with slides that can be used as course aids and a discussion forum. This edition devotes more space to the analysis of public policy and the levers available to policy makers, with new chapters on such topics as discrimination, globalization, income redistribution, employment protection, and the minimum wage or labor market programs for the unemployed. Theories are explained on the basis of the simplest possible models, which are in turn related to empirical results. Mathematical appendixes provide a toolkit for understanding the models.
| Author | : Great Britain: H.M. Revenue & Customs |
| Publisher | : The Stationery Office |
| Total Pages | : 64 |
| Release | : 2012-03-21 |
| Genre | : Business & Economics |
| ISBN | : 9780108511516 |
This is one of the accompanying documents to the 2012 Budget (ISBN 9790102976045) and examines the impact to the Exchequer of the 50% additional rate of income tax, introduced on 6 April 2010. The report seeks to provide the first comprehensive ex-post assessment of the additional rate yield using a range of evidence including 2010-11 Self Assessment returns. Analysis shows that there was a considerable behavioural response to the income tax rate change, including a substantial amount of forestalling, with an estimated £16 to £18 billion of income brought forward to the 2009-10 to avoid the tax increase. The net result of such actions is that the underlying yield from the additional rate was much lower that forecast. The report also describes how the impact of introducing the additional rate may extend well beyond the Exchequer, with the view that higher tax rates make the tax system less competitive and therefore less attractive to establish a business.The publication is divided into six chapters with three annexes.
| Author | : Andreas Pollak |
| Publisher | : Mohr Siebeck |
| Total Pages | : 204 |
| Release | : 2007 |
| Genre | : Business & Economics |
| ISBN | : 9783161493041 |
Designing a good unemployment insurance scheme is a delicate matter. In a system with no or little insurance, households may be subject to a high income risk, whereas excessively generous unemployment insurance systems are known to lead to high unemployment rates and are costly both from a fiscal perspective and for society as a whole. Andreas Pollak investigates what an optimal unemployment insurance system would look like, i.e. a system that constitutes the best possible compromise between income security and incentives to work. Using theoretical economic models and complex numerical simulations, he studies the effects of benefit levels and payment durations on unemployment and welfare. As the models allow for considerable heterogeneity of households, including a history-dependent labor productivity, it is possible to analyze how certain policies affect individuals in a specific age, wealth or skill group. The most important aspect of an unemployment insurance system turns out to be the benefits paid to the long-term unemployed. If this parameter is chosen too high, a large number of households may get caught in a long spell of unemployment with little chance of finding work again. Based on the predictions in these models, the so-called "Hartz IV" labor market reform recently adopted in Germany should have highly favorable effects on the unemployment rates and welfare in the long run.
| Author | : Tor Eriksson |
| Publisher | : Edward Elgar Publishing |
| Total Pages | : 281 |
| Release | : 2023-09-06 |
| Genre | : Business & Economics |
| ISBN | : 1800377541 |
This authoritative Elgar Encyclopedia provides a comprehensive overview of central concepts in labour studies, and how they can be used to analyse labour markets. Examining regional and sectoral labour markets alongside the internal labour markets of firms, it clearly lays out the current state of social scientific knowledge on labour.
