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"LABOR INCOME"
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Optimal labor income taxation and asset distribution in an economy with no insurance market and extensive labor supply responses
We examine the effects of stationary nonlinear labor income tax rules in a dynamic economy, considering extensive marginal labor-leisure choices and uninsured idiosyncratic shocks on labor productivity and labor disutility. The labor income tax rule has significant implications for households’ savings behavior and asset distribution over the long-run. We derive a optimal stationary tax rules as a natural extension of optimal participation tax rule in the static models. Through numerical simulations, two main findings emerge: (i) The current optimal tax rule, aimed at maximizing welfare based on the present asset distribution level, supports in-work benefits for low-income workers as a static extensive margin model. While this policy temporarily enhances welfare, it leads to a decline in capital accumulation and a decrease in average utility flow over time. (ii) The long-run optimal tax rule, optimizing welfare when the asset distribution reaches a stationary state, exhibits less progressivity and initially worsens welfare temporarily. However, it eventually improves the average utility flow in the long-run. The long-term consequences of households’ saving behavior and asset distribution mitigate the attractiveness of in-work benefit policies. By shedding light on the trade-offs between short-term welfare gains and long-term utility improvements, this study provides insights into designing effective labor income tax policies in a dynamic economic context.
Journal Article
How human capital affects labor income share at the sectoral level?: Evidence from the EU-13 countries and the UK
PurposeThe author investigates the effects of human capital on labor income share in the 15 sectors of the European Union (EU)-13 countries and the United Kingdom (UK) over the period 2008–2015.Design/methodology/approachThe author employs pooled ordinary least squares (OLS) estimation with panel data, using the EU KLEMS database.FindingsThe results show that when education level increases, labor income share increases and gender-based labor income share differentials decrease. Return to education is higher in qualitative sectors in contrast with the other sectors. Moreover, there are gender-based labor income share differentials at the sectoral level. These differentials are higher in nonqualitative sectors, while they are relatively lower in qualitative sectors.Research limitations/implicationsThe biggest limitation of the study is that the data range cannot be expanded because of the database. The author is of opinion that the empirical findings will guide to policy makers in terms of wage setting.Originality/valueThe expected contribution of this study to the literature is to investigate the effect of human capital on labor income share at the sectoral level for the EU-13 countries and the UK. As far as the author knows, there is no study which investigates this topic at the sectoral level such a comprehensive, in the literature.
Journal Article
Labour Incomes in India: A Comparison of Two National Household Surveys
The COVID-19 pandemic created a need for high-frequency employment and income data. Policy-makers and researchers of developing countries typically have not had access to such data. In India, a new private high-frequency panel dataset has recently emerged as the dataset of choice for analysis of the economic impact of COVID-19. This is the Consumer Pyramids Household Survey (CPHS) conducted by the Centre for Monitoring the Indian Economy (CMIE). But the CPHS has also been criticised for being inadequately representative nationally by missing poor and vulnerable households in its sample. We examine the comparability of monthly labour income estimates for the pre-pandemic year (2018–19) for CPHS and the official Periodic Labour Force Survey (PLFS). Across different methods and assumptions, as well as rural/urban locations, CPHS mean monthly labour earnings are anywhere between 5 percent and 50 percent higher than corresponding PLFS estimates. In addition to the sampling concerns raised in the literature, we point to differences in the way employment and income are captured in the two surveys as possible causes of these differences. While CPHS estimates are always higher, it should also be emphasised that the two surveys agree on some stylised facts regarding the Indian workforce. An individual earning ₹50,000 per month lies in the top 5 percent of the income distribution in India as per both surveys. Second, both PLFS and CPHS show that half the Indian workforce earns below the recommended National Minimum Wage.
Journal Article
The distributional consequences of social distancing on poverty and labour income inequality in Latin America and the Caribbean
This paper estimates the potential distributional consequences of the first phase of the COVID-19 lockdowns on poverty and labour income inequality in 20 Latin American and Caribbean (LAC) countries. We estimate the share of individuals that are potentially able to remain active under the lockdown by taking into account individuals’ teleworking capacity but also whether their occupation is affected by legal workplace closures or mobility restrictions. Furthermore, we compare the shares under the formal (de jure) lockdown policies assuming perfect compliance with the shares under de facto lockdowns where there is some degree of non-compliance. We then estimate individuals’ potential labour income losses and examine changes in poverty and labour income inequality. We find an increase in poverty and labour income inequality in most of the LAC countries due to social distancing; however, the observed changes are lower under de facto lockdowns, revealing the potential role of non-compliance as a coping strategy during the lockdowns. Social distancing measures have led to an increase in inequality both between and within countries. Lastly, we show that most of the dispersion in the labour income loss across countries is explained by the sectoral/occupational employment structure of the economies.
Journal Article
Money also is sunny in a retiree's world: Financial incentives and work after retirement
This paper assesses the impact of financial incentives on working after retirement. The empirical analysis is based on a large administrative individual career data set that includes information about 2% of all German employees subject to social security or in marginal employment until age 67 and their employers in the period 1975-2014. We use the classical labor supply model and differentiate between the impact of (potential) labor and non-labor (pension entitlements) income. A Heckman-type two step selection model corrects for endogeneity. We show that labor income has a positive and non-labor income a negative impact on the decision to work after retirement. Especially individuals who can substantially increase their earnings in comparison to their pension entitlements accordingly have a higher probability to work. Men are more attracted by labor earnings incentives than women. Also individuals who work until retirement are easier attracted to work after retirement by higher labor income than those with gaps between employment exit and retirement. Our results allow the calculation of the impact of changes in taxes on labor and non-labor income and changes in earnings offers by employers on work after retirement for different demographic groups.
Journal Article