Labor Supply under Participation and Hours Constraints

53 Pages Posted: 21 Oct 2018

See all articles by Kai-Uwe Müller

Kai-Uwe Müller

German Institute for Economic Research (DIW Berlin)

Michael Neumann

German Institute for Economic Research (DIW Berlin)

Katharina Wrohlich

DIW Berlin, German Institute for Economic Research

Date Written: October 2018

Abstract

The paper extends a static discrete-choice labor supply model by adding participation and hours constraints. We identify restrictions by survey information on the eligibility and search activities of individuals as well as actual and desired hours. This provides for a more robust identification of preferences and constraints. Both, preferences and restrictions are allowed to vary by and are related through observed and unobserved characteristics. We distinguish various restrictions mechanisms: labor demand rationing, working hours norms varying across occupations, and insufficient public childcare on the supply side of the market. The effect of these mechanisms is simulated by relaxing different constraints at a time. We apply the empirical frame- work to evaluate an in-work benefit for low-paid parents in the German institutional context. The benefit is supposed to increase work incentives for secondary earners. Based on the structural model we are able to disentangle behavioral reactions into the pure incentive effect and the limiting impact of constraints at the intensive and extensive margin. We find that the in-work benefit for parents substantially increases working hours of mothers of young children, especially when they have a low education. Simulating the effects of restrictions shows their substantial impact on employment of mothers with young children.

Keywords: Labor supply, hours restrictions, involuntary unemployment, gender

JEL Classification: J22,J23,J16,J64

Suggested Citation

Müller, Kai-Uwe and Neumann, Michael and Wrohlich, Katharina, Labor Supply under Participation and Hours Constraints (October 2018). DIW Berlin Discussion Paper No. 1758. Available at SSRN: https://ssrn.com/abstract=3269139 or http://dx.doi.org/10.2139/ssrn.3269139

Kai-Uwe Müller (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Michael Neumann

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Katharina Wrohlich

DIW Berlin, German Institute for Economic Research ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
11
Abstract Views
173
PlumX Metrics