Labor Supply and the Extensive Margin

Abstract

In this paper we propose a systematic way of examining the importance of the extensive and the intensive margins of labor supply in order to explain the overall movements in total hours of work over time. We show how informative bounds can be developed on each of these margins. We apply this analysis to the evolution of hours of work in the US, the UK, and France and show that both the extensive and intensive margins matter in explaining changes in total hours.

Tax Design for Inclusive Economic Growth

“…Workers, when they adjust their labour supply in response to taxation, are more likely to do so by working or not working than by reducing or increasing their hours. This means that the positive impacts that in-work credits have on labour market participation may outweigh the negative impacts they have on hours worked (Blundell et al, 2011). Given the fact that the response to taxation along the participation margin is larger than along the hours margin, this means that very low or negative tax rates at very low income levels (where such rates might positively affect participation) could be worth the necessary higher marginal tax rates (with their attendant negative effects on hours worked) as the hours or effort margins are smaller.…”

Husband’s Unemployment and Wife’s Labor Supply: The Added Worker Effect across Europe

“…Although the importance of distinguishing between the extensive and intensive margin of labor supply has long been recognized (cf. Blundell and MaCurdy, 1999;Blundell et al, 2011), previous literature mainly concentrates on analyzing the labor market entry of non-participating wives, while the labor supply adjustments of already participating wives are mostly ignored (exceptions are Stephens, 2002;Kohara, 2010;Gong, 2011). Given that female labor force participation rates have increased remarkably over the last decades and that the countries within Europe vary largely with respect to the structure of their labor markets, addressing this issue in an internationally comparative perspective is of particular importance.…”

How responsive is the labor market to tax policy?

“…Source: Own calculations based on [1]. RichaRd Blundell | How responsive is the labor market to tax policy?…”

“…Three key trends explain the recent history of variation in employment and hours worked [1]: declining employment among men, especially older men; rising employment and hours worked among women; and declining employment among people in their late teens and early 20s, partly reflecting an increase in educational attainment. These are also the three key margins most likely to respond positively to tax reform.…”

“…At young ages the decision whether to leave school, to start work, or to combine work and college comes into play. These decisions vary widely across countries [1]. At later ages, most of the wider differences in employment rates across countries cannot be explained simply by differences in the health of workers or the technology of employers [2].…”