A Structural Analysis of Labour Supply and Involuntary Unemployment in the Netherlands

Abstract

Most structural models for labour supply ignore the possibility of involuntary unemployment which may lead to biased behavioural responses. This may have important policy implications. We estimate a structural model for labour supply without and with involuntary unemployment for the Netherlands, using data for the period 2006-2009. We estimate both models for four groups separately: singles without children, single parents, couples without children and couples with children. We use information on job search behaviour to estimate the determinants of involuntary unemployment. We find that average labour supply elasticities are only slightly lower in the model with involuntary unemployment than in the model without involuntary unemployment. The main reason for this small bias is the relatively small share of individuals who are involuntary unemployed in the period 2006-2009. A simulation of tax-benefit reforms confirms that the upward bias in average labour supply responses is limited in the model without involuntary unemployment. Only for subgroups with a high risk of being involuntary unemployed, such as lower educated individuals and immigrants, we find a relatively large upward bias in labour supply elasticities in the model without involuntary unemployment.

How Elastic is the Labour Supply of Female Migrants Relative to the Labour Supply of Female Natives?

“…Table 3a and b provide the sub-elasticities with respect to the participation rate (extensive margin), while Table 4a and b provide the sub-elasticities with respect to the hours worked excluding non-participants (intensive margin) among individuals who live with a partner (Tables a) and without a partner (Tables b). The total elasticities are very similar to those at the extensive margin and consistent with other studies, and in most cases, the extensive margin dominates the intensive margin (Bargain et al 2014;de Boer 2018). The differences across the subgroups are similar at the extensive and intensive margins 1 3…”

Causes of Involuntary Unemployment in Brazil

“…The age variable was also statistically significant with a negative sign, the same being observed with gender, being from rural areas and living in regions other than the Northeast. Correlating these initial results with those obtained by Boer (2015), we see that the unemployment issue seems to be less frequently a problem for non-single individuals. Sackey and Osei (2006) argue that younger people are more prone to involuntary unemployment due to the fact that they have fewer skills compared to older people.…”

“…In recent times, the issue has been discussed in the literature using structural models of labor supply, as presented by Boer (2015), who makes a structural analysis of labor supply considering involuntary unemployment in the Netherlands, where it was concluded that the average elasticity of labor supply is slightly lower in the model considering involuntary unemployment, than in the model which does not consider it.…”

Analysing tax-benefit reforms in the Netherlands using structural models and natural experiments

“…We ignore involuntary unemployment (and a potential difference between preferred and actual working hours). However, estimating a double-hurdle model (Cragg 1971), we find that accounting for involuntary unemployment makes little difference in the employment responses to changes in financial incentives (De Boer 2018). 63 Furthermore, we ignore responses to marginal (and participation) tax rates other than labour supply.…”