The effect of income on labor supply is a parameter of great importance for both theory and policy analysis. In this paper, I provide new estimates of the income effect of welfare transfers on individual labor supply. I leverage novel social security administrative data on the universe of survivor insurance payments in Italy, and useful quasi-experimental variation in the benefits received by surviving spouses on the basis of their spouse's death date. I implement a regression discontinuity design in spousal death date to identify the effect of unearned income on labor supply, earnings and program substitution. Benefit losses trigger tantamount increases in earned income, implying a marginal propensity to earn out of unearned income of approximately -1. Extensive-margin responses — in the form of both increased labor-market entry by younger survivors and delayed retirement by older survivors — emerge as the main driving force behind the income response. Program substitution also appears to be a relevant margin of adjustment. I consider alternative explanations for the large income response. Finally, I discuss the normative implications of my findings. I propose a revealed-preference approach to estimate the value of transfers based on participation responses. I demonstrate that large participation responses to realized benefit drops are revealing of large implicit valuations of welfare transfers in the widowhood state, and of substantial welfare gains from more generous survivor insurance.
CEPR Discussion Paper, No. 13310, CEP Discussion Paper No. 1585, WorkINPS Paper No. 16. Submitted
The Great Recession has seen a revival of interest in policies encouraging labor hoarding by firms. Short time work (STW) policies, which consist in offering subsidies for hours reductions to workers in firms experiencing temporary shocks, are the most emblematic of these policies, and have been used aggressively during the recession. Yet, very little is known about their employment and welfare consequences. This paper leverages unique administrative social security data from Italy and quasi-experimental variation in STW policy rules to offer compelling evidence of the effects of STW on firms' and workers' outcomes, and on reallocation in the labor market. Our results show large and significant negative effects of STW treatment on hours, but large and positive effects on headcount employment. Results also show that employment effects disappear when the program stops, and that STW offers no long term insurance to workers. Finally, we identify the presence of significant negative reallocation effects of STW on employment growth of untreated firms in the same local labor market. We develop a simple conceptual framework to rationalize this empirical evidence, from which we derive a general formula for the optimal STW subsidy that clarifies the welfare trade-offs of STW policies. Calibrating the model to our empirical evidence, we conduct counterfactual policy analysis and show that STW stabilized employment during the Great Recession in Italy, and brought (small) positive welfare gains.
“Changing the Structure of Minimum Wages: Firm Adjustment and Wage Spillovers”, with S. J. Machin.
CEP Discussion Paper No. 1533, IZA Discussion Paper No. 11474 and CEPR Discussion Paper No. 12919. Submitted
This paper analyses the economic impact of a significant change to the structure of a minimum wage setting policy. The context is the United Kingdom where government mandated an unexpected change in the structure of minimum wages and their setting in 2016 by introducing a new minimum wage – the National Living Wage (NLW) – for workers aged 25 and over. The new NLW rate was significantly higher than the minimum wage for those under age 25. The consequences of this change are studied in a sector containing many low wage workers, the care homes industry. The new minimum wage structure and associated higher minimum wage for those aged 25 and above significantly raised wages, but at the same time without adversely impacting employment and hours, nor firm closure. Rather the margin of adjustment used to offset the sizable wage cost shock was the quality of care services, which appears to have suffered due to the sizable minimum wage increase. There is also strong evidence of wage spillovers as younger workers wages rose in tandem with the higher adult minimum wage, but with no impact on their relative employment. Based on further empirical tests, employer preference for fairness seems to offer the most plausible explanation for these results.
“Zero Hours Contracts and Labour Market Policy”, with N. Datta and S. J. Machin. Prepared for the 68th Panel Meeting of Economic Policy (available upon request)
The evolving nature of atypical work arrangements is studied. A particular focus is placed on one such form of work relation: zero hour contracts (ZHCs). The paper uses existing secondary data and new survey data collected for the specific purpose of studying alternative work arrangements to describe the nature of ZHC work in the UK labour market. The interaction with labour market policy is also explored, in the context of the 2016 introduction of the UK’s National Living Wage. ZHC work is shown to be an important feature of today’s work arrangements, and a higher minimum wage has resulted in an increased use of ZHCs in the UK social care sector, and in low wage sectors more generally.
WORK IN PROGRESS
“Self-employment and Alternative Work Arrangements: A Cross-Country Perspective”, with T. Boeri, A. B. Krueger and S. J. Machin, in preparation for the Journal of Economic Perspectives
“The Value of Zero Hours Contracts”
“Zero Hours Contracts, Tax Credits and Minimum Wages”, with A. Adams and S. J. Machin
Colonna, F., and G. Giupponi (2015), “Why Do Firms Hire on a Fixed-Term Basis? Evidence on the “Buffer Stocks” Hypothesis from the Longitudinal Panel CICO”, Bank of Italy Occasional Papers, No. 297
Palumbo, G., G. Giupponi, L. Nunziata and J. Mora (2013), “The Economics of Civil Justice: New Cross-Country Data and Empirics”, OECD Economics Department Working Papers, No. 1060, OECD Publishing, Paris
Palumbo, G., G. Giupponi, L. Nunziata and J. Mora (2013), “Judicial Performance and its Determinants: a Cross-Country Perspective”, OECD Economic Policy Papers, No. 5, OECD Publishing, Paris
André, C., C. García, G. Giupponi and J. Pareliussen (2013), “Labour Market, Welfare Reform and Inequality”, OECD Economics Department Working Papers, No. 1034, OECD Publishing, Paris