Three Margins of Labor Supply and Policy Analysis
Date Issued
2014
Date
2014
Author(s)
Lai, Chih-Fang
Abstract
This dissertation decomposes labor supply into three margins step by step and studies the relative effects of two adverse labor market institutes on labor supply. Labor supply in Europe declined about 30% relative to the US over the past 3 decades. The decline in labor supply comes from both hours worked per worker and employment. Some studies attributed the declining hours worked to higher labor taxes, while other studies accredited high unemployment rates in Europe to generous non-employment benefits. Fang and Rogerson (2009) is the only exception which incorporates two margins of labor supply.
Fang and Rogerson (2009) embedded working hours into Pissarides matching model and found that higher labor taxes decrease both hours per worker and employment. The first essay of this dissertation starts from Fang and Rogerson (2009) to compares the relative effects of increases in labor taxes and non-employment benefits on hours per worker and employment and quantifies them. We find that increases in labor taxes decrease hours per worker and employment, with an overstated adverse effect on hours per worker if extensive margins are not taken into account. Moreover, increases in non-employment benefits decrease employment and increase hours per worker, with an understated adverse effect on employment if intensive margins are not considered. In the baseline parameterization, we find that increases in labor taxes and non-employment benefits together explain about 75% of declining labor supply in Europe, with the fraction accounted for being increasing in the labor supply elasticity and decreasing in the labor’s contribution in matching.
The second essay adopts the same setup of Fang and Rogerson (2009) but varies the relative bargaining power of workers on working hours. We find that the mechanisms shaping the supply of hours per worker play an important role. In the mechanism when the working hour is bargained by matched job-worker pairs, a higher labor income tax reduces both employment and hours per worker. When the laborer’s hour bargaining power is larger, the negative effect on employment is smaller while the negative effect on hours is larger. In the mechanism when labor hours are decided exclusively by the household, i.e., the laborer’s hour bargaining power is 100%, the negative effects on hours per worker approach to the maximum. In extremis, when the utility of leisure is linear in hours, there is no any effect on employment. In the mechanism when the working hour is effectively regulated by an authority, a higher labor tax only reduces employment without any effect on hours.
The third essay further splits employment into unemployment rates and labor force participation which is endogenous, and compares with the model with exogenous LFP. Because of discouraging LFP, labor taxes decrease employment in our model less than the model with exogenous LFP, have ambiguous effects on hours, and decrease less labor supply in our model. Due to boosting LFP, unemployment compensation increases employment in our model and decreases in the model with exogenous LFP, but with opposite effects on hours, labor supply is ambiguous in both models. With endogenous LFP, the quantitative result explains the difference in labor supply better than the model with exogenous LFP.
Subjects
搜尋與配對
工時
失業
勞動參與
勞動稅和失業救濟金
SDGs
Type
thesis
File(s)![Thumbnail Image]()
Loading...
Name
ntu-103-D96323001-1.pdf
Size
23.54 KB
Format
Adobe PDF
Checksum
(MD5):6127058a4676135469f2612196a6861b