Three Essays on Government Policy, Labor Supply and Income Distribution PDF Download

Author: Ximing Wu
Publisher:
ISBN:
Category :
Languages : en
Pages : 254

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Author: Christopher Fowler
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 134

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Chapter one determines the properties of the optimal tax function when there is rent-seeking in the labor market. Rent-seeking in the labor market refers to unproductive effort expended in order to increase compensation. With rent-seeking effort expended by high skill workers, low skill workers face reduced wages because firms, in a competitive market, face a zero profits condition. Firms are able to respond to rent-seeking by increasing the number of high skill workers hired, reducing their productivity and wages. The government's optimal tax function increases marginal and average taxes on high skill workers. While low skill workers face lower marginal and average tax rates. The government, therefore, wishes to redistribute income primarily through post-tax income rather than through manipulating the distribution of pre-tax income. Chapter two looks at the effect of both intensive and extensive margin labor supply on the optimal tax function. The model combines a static search labor market model with a classical labor supply model. By combining these two models, the optimal tax function will balance incentives for working more hours and incentives for searching for work. The tax function provides insight into how the government should balance redistribution and efficiency when workers can potentially be unemployed for long periods of time. The resulting tax function increases the marginal tax rate over the model. This increase is due to the government's ability to decrease the wages of workers which increases the general equilibrium probability of employment for workers. Chapter three investigates the effect of uneven internal migration by skill on the income inequality in local labor markets. Migrant moving within the US are more educated than workers who stay in their local labor market. We would expect to see income inequality to decrease in locations that experience more migration. However, we don't see this effect. Chapter one investigates this phenomenon using data from the American Community Survey (ACS). The ACS records information on income, education, and migration patterns and is a yearly representative sample of the US population. To causally estimate the effect of differing rates of migration by skill, a shift-share instrument is constructed. This instrument creates a predicted amount of migration based on historical migration patterns. The instrument seems to work well and does not appear to correlated with labor demand shocks. The main results are that income inequality increases when there are more college educated workers moving than non-college educated workers.

Author: Scott Legree
Publisher:
ISBN:
Category : Finance, Public
Languages : en
Pages : 172

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This three-chapter thesis evaluates the potential for two major government policy levers to influence income inequality in Canada: the tax and transfer system, and the labour relations framework. The first two chapters are concerned with estimating how tax-filers respond to changes in tax rates, and the extent to which governments are limited in raising income tax rates on higher income individuals to fund transfers to lower income individuals. The final chapter examines the possibility that governments can increase the bargaining power of labour unions through changes in labour legislation, and in turn, reduce wage inequality within the labour market. The elasticity of taxable income measures the degree of responsiveness of the tax base to changes in marginal tax rates. Recent Canadian estimates of this elasticity have found moderate elasticities for earners in the top decile, and high elasticities for earners in the top percentile (for example Milligan and Smart (2015) and Department of Finance (2010)). In Chapter 1, I explore the underlying mechanisms that generate the relatively higher estimates at the top of the income distribution. Using the Longitudinal Administrative Databank (LAD), I estimate elasticities for several sub-components of taxable income, such as earned employment income and total income. In contrast to other research, I find modest elasticities of taxable income, even within the top percentile. I demonstrate that elasticities estimated using the Gruber and Saez (2002) specification are sensitive to choices of weights. In Chapter 1, I find small elasticities not only for total and taxable income, but also for another very important income concept: employment income. Specifically, I find employment income elasticites of less than 0.07 for all income deciles. These elasticities, however, represent average estimates for heterogeneous workers who face different constraints and who have different incentives to respond to changes in tax rates. In Chapter 2, therefore, I estimate elasticities for different types of workers by dividing the sample by gender and by attachment to the labour force. Using the Survey of Labour and Income Dynamics (SLID), a survey with detailed information on labour hours and job characteristics, I find higher elasticities for female workers and for workers with a weaker attachment to the labour force. I test for robustness of the estimates by varying the income increment used to calculate the marginal effective tax rates (METRs), as well as varying the number of years between observations. A second-order benefit of Chapter 2 is it serves as a robustness check on the results of Chapter 1. That is, we reproduce the elasticity estimates for total income and taxable income from Chapter 1 with a different dataset, and find similar results. Chapter 3 turns to the potential role of labour relations reforms to influence Canadian income inequality. Labour relations policy in Canada, studied extensively for its impact on unions, has not been studied more generally for its role in income inequality. In this chapter, I provide evidence on the distributional effects of labour relations' reforms by relating an index of the favorableness to unions of Canadian provincial labour relations laws to changes in industry-, occupation-, education-, and gender-specific provincial unionization rates between 1981 and 2012. The results suggest that shifting every province's 2012 legal regime to the most union-favorable possible (a counterfactual environment) would raise the national union density by no more than 8 percentage points in the steady state. I also project the change in union density rates that would result in the counterfactual situation for several demographic subgroups of the labour force. While there is some evidence of larger gains among blue-collar workers, the differences across these groups are small and in some cases suggest even larger gains among more highly educated workers. The results suggest reforms to labour relations laws would not significantly reduce labour market inequality in Canada.

Author: Margaret Robbins Jones
Publisher:
ISBN:
Category :
Languages : en
Pages : 114

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: The following essays are concerned with the issues of labor supply and demand. Each essay's topic addresses the economic analysis of a wage floor or, in the case of the first essay, the Earned Income Tax Credit, which is often analyzed as an alternative policy to a minimum wage. Chapter 1 examines the response of workers, in terms of hours worked, to the Earned Income Tax Credit. Several studies have found that receipt of the EITC induces single women with dependent children to enter the labor market. Employing a regression kink design, I exploit the discontinuities in the EITC benefit function to estimate the impact of benefit receipt on single mothers hours of work once in the labor market. I find a decrease in hours worked for mothers with more than one child. The estimate is statistically significant but economically small. Chapter 2 investigates living wage laws, estimating wage, establishment number, and total employment for industries likely covered by a living wage law. I find that, contrary to expectation, living wage laws increase wages for covered industries but do not lead to firm exit or relocation or increased unemployment. Chapter 3 also looks at living wage laws. I use propensity score matching to match individuals in the two types of cities in an attempt to overcome this weakness in identification. Like previous studies, I find a statistically significant, positive effect of living wage policies on wages for those in the lowest decile of the wage distribution. However, I find an effect on employment and hours worked that is not different from 0.

Author: Gulgun Bayaz Ozturk
Publisher:
ISBN:
Category :
Languages : en
Pages : 238

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Author: Paul A. Torelli
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ISBN:
Category : African Americans
Languages : en
Pages : 328

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Author: Max Matthew Schanzenbach
Publisher:
ISBN:
Category :
Languages : en
Pages : 384

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Author: Xiaoyan Chen Youderian
Publisher:
ISBN:
Category :
Languages : en
Pages :

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The first essay considers how the timing of government education spending influences the intergenerational persistence of income. We build a life-cycle model where human capital is accumulated in early and late childhood. Both families and the government can increase the human capital of young agents by investing in education at each stage of childhood. Ability in each dynasty follows a stochastic process. Different abilities and resultant spending histories generate a stochastic steady state distribution of income. We calibrate our model to match aggregate statistics in terms of education expenditures, income persistence and inequality. We show that increasing government spending in early childhood education is effective in lowering intergenerational earnings elasticity. An increase in government funding of early childhood education equivalent to 0.8 percent of GDP reduces income persistence by 8.4 percent. We find that this relatively large effect is due to the weakening relationship between family income and education investment. Since this link is already weak in late childhood, allocating more public resources to late childhood education does not improve the intergenerational mobility of economic status. Furthermore, focusing more on late childhood may raise intergenerational persistence by amplifying the gap in human capital developed in early childhood. The second essay considers parental time investment in early childhood as an education input and explores the impact of early education policies on labor supply and human capital. I develop a five-period overlapping generations model where human capital formation is a multi-stage process. An agent's human capital is accumulated through early and late childhood. Parents make income and time allocation decisions in response to government expenditures and parental leave policies. The model is calibrated to the U.S. economy so that the generated data matches the Gini index and parental participation in education expenditures. The general equilibrium environment shows that subsidizing private education spending and adopting paid parental leave are both effective at increasing human capital. These two policies give parents incentives to increase physical and time investment, respectively. Labor supply decreases due to the introduction of paid parental leave as intended. In addition, low-wage earners are most responsive to parental leave by working less and spending more time with children. The third essay is on the motherhood wage penalty. There is substantial evidence that women with children bear a wage penalty of 5 to 10 percent due to their motherhood status. This wage gap is usually estimated by comparing the wages of working mothers to childless women after controlling for human capital and individual characteristics. This method runs into the problem of selection bias by excluding non-working women. This paper addresses the issue in two ways. First, I develop a simple model of fertility and labor participation decisions to examine the relationships among fertility, employment, and wages. The model implies that mothers face different reservation wages due to variance in preference over child care, while non-mothers face the same reservation wage. Thus, a mother with a relatively high wage may choose not to work because of her strong preference for time with children. In contrast, a childless woman who is not working must face a relatively low wage. For this reason, empirical analysis that focuses only on employed women may result in a biased estimate of the motherhood wage penalty. Second, to test the predictions of the model, I use 2004-2009 data from the 1997 National Longitudinal Survey of Youth (NLSY97) and include non-working women in the two-stage Heckman selection model. The empirical results from OLS and the fixed effects model are consistent with the findings in previous studies. However, the child penalty becomes smaller and insignificant after non-working women are included. It implies that the observed wage gap in the labor market appears to overstate the child wage penalty due to the sample selection bias.

Author: Laura Juarez
Publisher:
ISBN:
Category : Labor supply
Languages : en
Pages : 120

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Author: Ms.Era Dabla-Norris
Publisher: International Monetary Fund
ISBN: 1513547437
Category : Business & Economics
Languages : en
Pages : 39

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This paper analyzes the extent of income inequality from a global perspective, its drivers, and what to do about it. The drivers of inequality vary widely amongst countries, with some common drivers being the skill premium associated with technical change and globalization, weakening protection for labor, and lack of financial inclusion in developing countries. We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down. This suggests that policies need to be country specific but should focus on raising the income share of the poor, and ensuring there is no hollowing out of the middle class. To tackle inequality, financial inclusion is imperative in emerging and developing countries while in advanced economies, policies should focus on raising human capital and skills and making tax systems more progressive.