social assistance and labour supply the longitudinal 1988 89 lmas makes it possible to study the interaction between social assistance and labour supply while allowing for substantial time dependence tobit equations for hours worked on and off social assistance which allow for endogenous selection of social assistance status are estimated by using fiml small but statistically significant effects for a social assistance benefit variable are obtained particularly for females a claw back variable is not consistently useful the wage rate has a consistently negative coefficient in the selection equations and is important in the tobit equations in this paper an attempt is made to reconcile results found in earlier literature jel classification i38 j22 aide sociale et offre de travail l etude longitudinale de l enquete de 1988 89 sur la population active rend possible l etude de l interaction entre l aide sociale et l offre de travail tout en permettant la prise en compte de l effet d inertie herite du passe on calibre des equations tobit pour les heures travaillees separement pour les personnes qui recoivent et ne recoivent pas d aide sociale et une equation probit qui permet une selection endogene du statut d assiste social en utilisant la methode du maximum de vraisemblance avec pleine information on obtient des impacts faibles mais statistiquement significatifs des prestations d aide sociale sur l offre de travail pour les femmes une variable qui tente de capturer les effets de recouvrement fiscal des prestations n est pas uniformement utile comme source d explication le taux de salaire a un coefficient negatif de maniere generale dans les equations de selection et est important dans les equations tobit le memoire tente de reconcilier ces resultats avec ceux que contiennent les etudes anterieures

why are there so many long term sick in britain this paper examines the upward trend of numbers in receipt of invalidity benefit the major contributory benefit for the long term sick in britain since 1971 possible explanations include the rising level of unemployment through much of the period the heightened link between ill health and early retirement changes in the real level of benefits and changes in the composition of the workforce these possibilities are examined using a variety of methodologies time series cross section and fixed effects models copyright 1991 by royal economic society

the effect of food stamps on labor supply a bivariate selection model abstract although there is a large literature on the effects of u s transfer programs on labor supply this is the first such study of the food stamp program we model the nonlinearity and nonconvexity of the budget constraint and use maximum likelihood methods to estimate hours of work functions for female heads of household the largest recipient group in the program we also model the joint response to afdc and food stamps and we account for the existence of a significant number of eligible households who do not participate in the programs a three equation bivariate selection model is estimated on a sample of eligible households with maximum likelihood

unobserved variables and the elusive added worker effect consistent with recent empirical work this study finds no evidence of the added worker effect among married couples in the u s it is hypothesized that unobserved variables may be obscuring this added worker behavior this hypothesis is rejected the labor supply behavior of married women is influenced by the permanent and not the transitory nature of their spouses unemployment wives with frequently unemployed husbands have lower reservation wages yet apart from their measured human capital these same women face persistently lower wage rates and higher unemployment propensities in the labor market as a result married women with unemployed spouses are no more likely to be in the labor force and are actually less likely to be employed than observationally equivalent married women with employed spouses copyright 1991 by the london school of economics and political science

the effect of child support payments on the labor supply of female family heads an econometric analysis recent census bureau statistics show that women who receive child support payments have higher earnings and work longer hours than women who do not does this suggest that child support unlike all other nonwage income does not deter work effort or are women who receive it simply different we use 1979 1982 cps data on divorced or separated women to estimate the determinants of hours worked when afdc participation and child support are endogenous we find evidence of unobservable differences between women who receive child support and those who do not controlling for these both child support and other nonwage income appear to reduce hours worked but the deterrent effect of child support is considerably less

labour supply specification and the evaluation of tax reforms this paper investigates the practical importance of the functional specification of labour supply equations for the analysis of tax benefit reform we consider two labour supply specifications one derived from stone geary preferences and the other from a generalisation that relaxes some of the more critical restrictions in that model we use these equations to contrast the effects of two reforms to the u k income tax system one involves income effects almost exclusively while the other implies a significant number of large increases in marginal tax rates

schooling fertility and the labour market experience of married women a model of career path choice is constructed for a sample of women taken from the 1991 us national household education survey this allows for simultaneity and selection effects in the relationship between regime choice and earning it is established that inter alia expected earnings have a significant impact on the career path and the hours of work chosen by american women the role played by formal schooling and by childrearing in the determination of carrier path is highlighted and implications are discussed

the added worker effect the term added worker effect usually refers to a temporary increase in the labor supply of married women whose husbands have become unemployed this paper presents a new approach to the empirical study of the added worker effect which emphasizes the role of employment uncertainty and credit constraints in generating short run participation and employment patterns the estimates are based on employment transition probabilities rather than static measures of labor supply and are used in a dynamic simulation of changes in the employment and participation rates of wives following an exogenous increase in unemployment among their husbands the results show a small but significant added worker effect at least for white families and suggest that the apparent disagreement among previous studies may stem from different approaches to measuring responses to a transitory event such as an unemployment spell

assessing empirical approaches for analyzing taxes and labor supply recent surveys on the labor supply responses of men document a divergence in the estimates of substitution and income effects obtained using various estimation approaches generally studies accounting for nonlinear tax schedules in a static setting via a piecewise linear approach produce estimates that typically imply higher substitution and lower income responses than are suggested by empirical work applying other approaches this paper demonstrates that maximum likelihood estimation of a consumer choice problem with nonlinear budget sets implicitly relies on the satisfaction of inequality constraints that translate into behaviorally meaningful restrictions these constraints arise not as a consequence of economic theory but instead as a requirement to create a properly defined statistical model in the analysis of piecewise linear budget sets the implicit constraints required by maximum likelihood in estimation amount to imposition of slutsky conditions at all wage income combinations associated with kink points in the analysis of differentiable budget sets the tacit constraints invoked by maximum likelihood also involve inequality restrictions on slutsky terms the empirical work presented in this study supports the contention that these implicit constraints play a major role in explaining the discrepancies in estimates found in the literature on men s labor supply

the wisconsin child support assurance system estimated effects on poverty labor supply caseloads and costs the economic impact of a child support assurance system csas is simulated with microdata on custodial families in wisconsin the csas includes a uniform child support standard automatic wage withholding a minimum child support benefit and wage subsidy for eligible families the simulation incorporates a model of the labor supply decision representing the custodial parent s choice of whether to participate in csas or in the current afdc system the results suggest that csas can significantly reduce poverty as well as welfare caseloads if child support collections increase by one half of the difference between estimated ability to pay child support and current collections csas will be less costly than the current system

the impact of the potential duration of unemployment benefits on the duration of unemployment abstract this paper examines the impact of the potential duration of unemployment insurance ui benefits on unemployment in the united states first we use a large sample of household heads to examine differences in the unemployment spell distributions of ui recipients and nonrecipients sharp increases in the escape rate from unemployment both through recalls and new job acceptances are apparent for ui recipients around the time of benefits exhaustion such increases are not apparent at similar points of spell duration for nonrecipients second our analysis of accurate administrative data from 12 states indicates that a one week increase in potential benefit duration increases the average duration of the unemployment spells of ui recipients by 0 16 to 0 20 weeks

a participation model with non convex budget sets the case of the wives of the unemployed in great britain in this paper we estimate a participation model for the wives of the unemployed in great britain the aim is to bring new evidence about the importance of the disincentive effect caused by the benefit system in particular by supplementary benefit in explaning the low probability of participation associated with the wives of the unemployed the participation model takes into account the non convexities of the budget set which are due to the characteristics of supplementary benefit the utility function is assumed to be of the ces type

child support reform and the labor supply of lone mothers in the united kingdom the reform of child support arrangements including their treatment by the welfare system has been on the policy agenda in a number of countries in recent years this paper simulates the impact of a reform that recently has been implemented in the united kingdom the analysis is based on estimates of a model of discrete choice labor supply for a sample of u k lone mothers we suggest that reform will induce a major reduction in welfare expenditures on lone mothers and a significant rise in their labor force participation due to greater work incentives associated with the changes

to vote or not to vote the paradox of nonvoting one paradox of voting states that in a general election in which many citizens vote the probability that a single voter can affect the outcome is so small that in general citizens have no rational reason for voting however if all citizens accept this reasoning then none will vote and so each vote has a large probability of affecting the outcome hence all should vote after all the adoption of mixed strategies resolves this paradox if each citizen adopts a certain small probability of voting then the actual number of citizens voting will be just enough to make it worth those citizens while to vote a nash equilibrium point thus occurs here we compute nash equilibria for the simple case of majority voting for the more complicated case of composite voting for example as in a presidential election we draw certain qualitative inferences

a complete characterization of optimal growth paths in an aggregated model with a non concave production function the convexity of technology has played a crucial role in economic analyses of optimal one sector growth problems for example two of the key results on the traditional model of ramsey 1928 that have relied on the convexity of the technology are that optimal intertemporal growth involves moving monotonically towards a unique steady state as in cass 1965 koopmans 1965 and that the value function is a concave differentiable function of the initial capital stock as in benveniste and scheinkman 1979

what has been learned about labor supply in the past twenty years the main advance in the study of labor supply in the past 20 years has come in recognizing and interpreting the variety of different labor supply functions that coexist in the empirical literature a crucial theoretical distinction with important empirical payoff is that between labor supply choices at the extensive margin i e labor force participation and employment choices and choices at the intensive margin i e choices about hours of work or weeks of work for workers another important distinction is the one between a descriptive labor supply function and a structural supply function that can be the basis for out of sample policy investigations concerning responses to tax and welfare programs and evaluations of welfare losses a full understanding of the participation hours dichotomy leads to an appreciation of the importance of the problem of selection bias what is the wage to impute to a nonworking person these distinctions are a legacy of the research conducted on labor supply over the past 20 years many important empirical questions have been addressed i how strong are the effects of taxes welfare and transfer programs on labor supply ii how important is intertemporal substitution can life cycle labor supply models explain business cycle labor supply behavior iii has the consensus view of the 1960 s of high labor supply elasticities for married women and low labor supply elasticities for married men held up all of the empirical evidence assembled on labor supply must be called into question in the light of important research on the basic quality of the data conducted by analysts at the university of michigan i discuss this evidence in a concluding section except for my discussion of measurement issues i focus only on the major discoveries about which a general consensus has emerged

unemployment and female labour supply the definition of labour force participation in the standard labour supply model stands in sharp contrast to that used in compiling the labour force statistics in the labour supply models only those supplying positive hours of work are considered to be labour force participants on the other hand participation in the labour force statistics is often defined to include not only those supplying positive hours but also those actively searching for work this paper is an attempt to reconcile these concepts by allowing unemployed workers to enter a generalisation of the standard labour supply model this turns out to be a convenient way to enter demand side factors directly into the determination of an individual s labour market position the model is applied with some success to the working behaviour of married women in the uk family expenditure survey

a life cycle consistent empirical model of family labour supply using cross section data this paper estimates a utility maximising model of the joint determination of male and female labour supplies using a sample of married couples from the u k family expenditure survey the emphasis is on the estimation of within period preferences that are consistent with intertemporal two stage budgeting under uncertainty however the approach we adopt provides an alternative method of estimating certain aspects of life cycle behaviour to the fixed effects constant approach of heckman and macurdy 1980 macurdy 1981 and browning deaton and irish 1985 moreover it relaxes some of the underlying restrictions that are implicit in these constant models under uncertainty

accounting for inequality trends decomposition analyses for the uk 1971 86 eight explanations for uk income inequality trends between 1971 and 1986 are assessed by pooling evidence from inequality index decompositions by population sub group and by income source the principal causes of the aggregate trends were a mixture of changes in earnings inequality employment structure and unemployment but this mixture changed over time the impact of wage inequality changes on income inequality changes fell during the 1970s and 1980s reflecting the secular decline in the importance of employment earnings for household income packages unemployment changes had their largest impact at the start of the 1980s between 1981 and 1986 self employment income changes appear to have had the largest influence

parental leave a policy evaluation of the swedish daddy month reform abstract many governments are making attempts to increase fathers share of parental leave in order to correct for unequal labor market outcomes using swedish data we ask whether fathers can be encouraged to take more parental leave in order to mitigate the negative consequences of mothers career interruptions the unique data stem from a reform of parental leave resulting in a clean natural experiment data comprise all children born before control group and after treatment group the date of implementation of the reform in cohorts of up to 27 000 newborns mothers and fathers we find strong short term effects of the incentives on male parental leave but no behavioral effects in the household fathers in the treatment group do not take larger shares of the leave taken for care of sick children which is our measure for household work we also investigate a second data set on fathers and mothers long term wages and employment without finding evidence for substantial effects of the reform

a structural model of multiple welfare program participation and labor supply work on estimating the labor supply effects of high marginal tax rates in welfare programs has been hindered by the difficulty of estimating the effects of participation in multiple welfare programs simultaneously the authors solve this problem by applying methods of simulation estimation to a model of labor supply and multiple program participation the results show asymmetric wage and tax rate effects with fairly large wage elasticities of labor supply but very inelastic responses to moderate changes in cumulative marginal tax rates implying that high welfare tax rates do not necessarily induce major reductions in work effort copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the evolution of wages in the united kingdom evidence from micro data we use data on male employees from the u k family expenditure survey for the years 1968 86 to investigate the behavior of wages over time and across cohorts we find that differentials between manual workers and professional managerial ones are lower at labor market entry for younger cohorts but increasing faster with age in the 1980s than in the past the returns to experience appear to be very low in the united kingdom particularly for manual and clerical workers although the improved education of younger workers may partly explain this finally we show that individual wages in the united kingdom are highly procyclical

on earnings related unemployment benefits and their relation to earnings an aspect of unemployment in britain that has been much discussed in recent years is the possible disincentive effects of unemployment benefits paradoxically the actual pattern of receipt of those benefits is hardly considered at all one reason for this is the popular belief that actual receipt follows a well defined hypothetical pattern this belief is encouraged by the government s representation of the benefit system for instance the department of health and social security dhss regularly publish hypothetical calculations of benefit receipt e g social security statistics i982 table 46 i4 and government answers to parliamentary questions are typically based on these figures economists frequently take these hypothetical calculations at face value when trying to model the effect of unemployment benefits on labour supply in a time series framework or in the case of micro analysis make similar calculations for each individual in the data set calculations are based on a limited set of stylised rules which are considered to capture the essence of the workings of the benefit system however estimates of the disincentive effects of benefits do not appear to be robust to the method of calculation atkinson et al i984 this emphasises the need for more precise modelling of the determinants of benefit receipt this paper is concerned with modelling the receipt of the benefit that has been at the heart of the incentives debate earnings related supplement ers was the element of national insurance unemployment benefit in the united kingdom that was linked to some measure of past earnings several commentators in the mid1 970s purported to show that its introduction in i 966 led to a marked rise in unemployment in the late i96os e g maki and spindler i975 and its abolition under the i980 social security no 2 act was certainly due in part to the belief that it discouraged work in investigating the receipt of this benefit the paper provides a case study of the difficulties in modelling the incomes of the unemployed and a cautionary tale to any investigator who does not have all the information necessary for precise calculation of budget constraints the typical assumption that has been made when simulating ers in micro data sets of unemployed individuals is that the relevant earnings that generate an ers payment may be successfully proxied by normal weekly earnings immediately prior to unemployment we may call this proxy the hypothetical model of ers receipt and the focus of the analysis is a test of this model using data on

continuous stochastic games of capital accumulation with convex transitions abstract we consider a discounted stochastic game of common property capital accumulation with nonsymmetric players bounded one period extraction capacities and a transition law satisfying a general strong convexity condition we show that the infinite horizon problem has a markov stationary subgame perfect equilibrium and that every finite horizon truncation has a unique markovian equilibrium both in consumption functions which are continuous and nondecreasing and have all slopes bounded above by 1 unlike previous results in strategic dynamic models these properties are reminiscent of the corresponding optimal growth model journal of economic literature classification codes c73 o41 q20

child support and partnership dissolution this article studies the determinants of partnership dissolution and focuses on the role of child support we exploit the variation in child support liabilities and entitlements driven in part by the introduction of a new set of complex rules that determined child support liability in the uk and by their interaction with welfare rules our panel has the virtue that the post 1993 variation in child support liability for all couples in partnerships formed prior to 1993 is unanticipated we find strong evidence that the resulting large child support liabilities significantly reduced dissolution risks

wage offers and full time and part time employment by british women strong evidence in support of the hypothesis that women receive lower wage offers in part time jobs than in full time jobs is provided by estimation of wage offer functions for british women which control for self selection into these two types of jobs analysis of married women s employment decisions indicates that the difference in a woman s expected wage offers between full time and part time employment is an important determinant of whether she works full time while husband s income mainly affects the decision of whether to work in addition it appears that women who work despite having observed characteristics that discourage employment are much more likely to work part time

benefits and the labour supply of women married to unemployed men this paper seeks to explain the low labor force participation rates of women married to unemployed men in the reducing the net increment to household income that would result from the wife s employment simple probit models of the participation and part time full time decisions are estimated using a large cross sectional data set the results confirm the importance of severe disincentive effects controlling for labor market conditions income related benefits are found to create worse problems than national insurance benefits both types impede part time work in particular copyright 1990 by royal economic society

the econometrics of piecewise linear budget constraints a survey and exposition of the maximum likelihood method in this article maximum likelihood techniques for estimating consumer demand functions when budget constraints are piecewise linear are exposited and surveyed consumer demand functions are formally derived under such constraints and it is shown that the functions are themselves nonlinear as a result the econometric problems in estimating such functions are exposited and the importance of the stochastic specification is stressed in particular the specification of both unobserved heterogeneity of preferences and measurement error econometric issues in estimation and testing are discussed and the results of the studies that have been conducted to date are surveyed

how does the benefit effect vary as unemployment spells lengthen summary this paper investigates how the effect of income while unemployed on the probability of an individual leaving unemployment varies with the length of time that the individual has been unemployed we examine this question in the context of a variety of alternative econometric models we extend the proportional hazards model with unrestricted baseline hazard to one in which there are unrestricted effects of a subset of the explanatory variables and also consider models that can be estimated as series of binary response models the proportional hazard restrictions are rejected for the sample of british unemployed men analysed and in the binary sequence framework logit and probit models based on symmetric distributions dominate in likelihood terms the extreme value form model implied by extension of the proportional hazards formulation logit models with a flexible form for the duration dependence which also incorporate unobserved heterogeneity in a flexible way are estimated the results for all formulations indicate a rapidly declining effect of unemployment income as a spell lengthens with no significant effect for the long term unemployed the preferred specifications which allow for omitted heterogeneity indicate no significant effect after about 5 months and this result is robust to the inclusion or exclusion of previous labour market experience variables and to the choice of mixing distribution

risk and farm operator labour supply this study uses a large increase in us federal crop insurance subsidies as a natural experiment to identify the importance of risk for farm operator labour supply subsidy increases induced greater crop insurance coverage which in turn reduced farmers financial risks crop insurance participation data are merged with farm level census of agriculture data from 1992 and 1997 to compare how individuals off farm labour supply changed in response to the policy induced change in insurance coverage the empirical approach controls for unobserved heterogeneity and accounts for the censored nature of the data it is found that greater insurance coverage reduces the off farm labour supply of operators who produced at least 100 000 of output and increased the labour supply of small farm operators who produced less than 25 000 of output

structural models of family labor supply a discrete choice approach a static neoclassical structural model is presented explaining labor supply of both spouses in two adult households in the netherlands family preferences are described with a direct translog utility function with the husbands leisure the wifes leisure and family income as its arguments we assume that the choice set of each family is finite account is taken of the dutch tax and benefits system we allow for hours restrictions and random preferences and account for unobserved wages of nonworkers the models are estimated using smooth simulated maximum likelihood results based upon dutch cross section data from 1987 are illustrated by confidence intervals for elasticities and by several policy simulations excerpt

one sector nonclassical optimal growth optimaility conditions and comparative dynamics the authors consider a one sector nonclassical model of optimal economic growth characterized by a convex concave production function they provide in a dynamic programming context a characterization of all local interior maximum of the miximand of the bellman equation these conditions are the euler equation and a second order condition namely that the marginal propensity to consume is less than one an example is used to illustrate these conditions also several comparative dynamic results are derived in particular it is shown that the maximum and minimum selections out of the optimal consumption correspondence shift down as the discount factor increases copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the sensitivity of an empirical model of married women s hours of work to economic and statistical assumptions this study undertakes a systematic analysis of several theoretic and statistical assumption s used in many empirical models of female labor supply using a singl e data set psid 1975 labor supply data the author is able to replic ate most of the range of estimated income and substitution effects fo und in previous studies in this field he undertakes extensive specif ication tests and finds that most of this range should be rejected du e to statistical and model misspecifications the two most important assumptions appear to be the tobit assumption used to control for sel f selection into the labor force and exogeneity assumptions on the wi fe s wage rate and her labor market experience copyright 1987 by the econometric society

modelling the take up of means tested benefits the case of housing benefits in the united kingdom official estimates of housing benefit take up rates suggest that up to two million families in the united kingdom ma y not be receiving the help with their housing costs to which they ar e entitled the authors interest in the take up of means tested bene fits is therefore motivated by two concerns the first is the governm ent revenue implications of a change to benefit entitlement levels t he second relates to the welfare of individuals who fail to claim the ir entitlement to benefit in this paper the authors investigate the relationship between the take up of means tested housing benefit in dividual socioeconomic characteristics and the level of entitlement copyright 1987 by royal economic society

collective labor supply and welfare the paper develops a general collective model of household labor supply in which agents are characterized by their own possibly altruistic preferences and household decisions are only assumed to be pareto efficient an alternative interpretation is that there are two stages in the internal decision process agents first share nonlabor income according to some given sharing rule then each one optimally chooses his or her own labor supply and consumption this setting is shown to generate testable restrictions on labor supplies moreover the observation of labor supply behavior is sufficient for recovering individual preferences and the sharing rule up to a constant finally the traditional tools of welfare analysis can be adapted to the new setting

welfare benefits and lone parents employment in great britain the analysis pools ten years of general household surveys to identify the effects of britain s welfare benefit system on a lone mother s probability of employment it confirms the prediction that because of the implicit 100 percent tax rate in the system higher nonlabor income other than welfare benefits increases the probability while a higher benefit guarantee reduces it the analysis also confirms that among women who could never be eligible for benefits higher nonlabor income reduces the probability of employment and the guarantee has no effect

endogenous information acquisition in bayesian games with strategic complementarities abstract this paper studies covert or hidden information acquisition in common value bayesian games of strategic complementarities using the supermodular stochastic order to arrange the structures of information increasingly in terms of preferences we provide novel easily interpretable and verifiable though restrictive conditions under which the value of information is increasing and convex and study the implications in terms of the equilibrium configuration increasing marginal returns to information leads to extreme behavior in that agents opt either for the highest or the lowest quality signal so that the final analysis of this complex game simplifies greatly into that of a two action game this result can rationalize the complete information game as an endogenous outcome finally we also establish that higher quality information leads players to select more dispersed actions in the bayesian game

optimal investment policy with fixed adjustment costs and complete irreversibility we develop and solve analytically an investment model with fixed adjust ment costs and complete irreversibility that reproduces observed investment dynamics at the micro level we impose a minimal set of restrictions on tech nology and uncertainty most of the results duplicate or generalize earlier findings that have been established either by simulations or under contrefac tual assumptions

a new look at optimal growth under uncertainty abstract we consider the discounted optimal growth model under uncertainty and model the stochastic technology as a transition probability mapping inputs into random outputs this formulation allows for weaker assumptions of monotonicity and convexity on the technology associated with second order stochastic dominance and permitting some increasing returns preserving all the conclusions of this model furthermore in this framework the differentiability of the unique optimal policy is obtained in an elementary way from the smoothness of the data our results provide support for the contention that stochastic modeling in economics should be more than a mere extension of the deterministic realm

work incentives in the afdc system an analysis of the 1981 reforms the road to welfare reform increasingly appears to be one of the rockier paths the united states has traversed indeed by all outward appearances it is not even clear whether the current path runs uphill or downhill as far as work incentives in the welfare system are concerned economists of all political persuasions from milton friedman to james tobin have agreed that the uphill direction is that which leads to lower tax rates i e lower benefit reduction rates however as with free trade the near unanimity of opinion among economists has strangely only occasionally persuaded a majority of the nation s representatives to vote to go uphill the legislative history so illustrates from 1935 when the aid to families with dependent children afdc program was enacted to the 1967 social security amendments the tax rate in the program was 100 percent that is benefits were reduced by one dollar for every extra dollar earned with the 1967 amendments congress lowered the tax rate to 67 percent and in the heady atmosphere of the 1960 s it was expected that further progress in this direction would be made and that the tax rate would be lowered further indeed the family assistance plan subsequently proposed by president nixon would have lowered tax rates however the legislation passed the house but not the senate the ford administration considered welfare reform proposals internally but never proposed legislation while the carter administration proposed a massive welfare reform plan that met with no legislative success welfare reform was finally achieved in 1981 when the omnibus budget reconciliation act obra was enacted but obra increased the tax rate back to 100 percent the level prevailing prior to 1967 in retrospect it appears that 1967 marked the end not the beginning of legislative progress on work incentives in the welfare system in this paper i shall report the results of recent research that complicates the issue considerably by questioning whether lower tax rates do in fact provide work incentives the findings themselves seesaw not unlike the path of welfare reform itself first on a theoretical basis it appears that lower tax rates in a welfare program do not necessarily increase labor supply in the low income population as a whole contrary to the conventional wisdom in fact it also appears that members of the reagan administration were aware of this all along well in advance of the economics profession this theoretical ambiguity has fairly fundamental implications for the work incentive issue in welfare reform second nevertheless the empirical resolution of the ambiguity provided by existing econometric estimates in the labor supply literature and by estimates of the effect of afdc on labor supply indicates that a lower tax rate would indeed increase labor supply in the low income population as a whole and that a higher tax rate would decrease it thus the conventional wisdom is correct even though based upon an incorrect tdiscussants henry aaron the brookings institution and university of maryland harold watts columbia university edward gramlich university of michigan

consumption and unemployment this paper examines consumption changes of workers following experiences of unemployment in different stochastic environments the model developed in the paper predicts that consumption changes following unemployment spells should be small for workers the higher are their layoff and recall probabilities these predictions are confirmed in estimates with panel data

household unemployment and the labour supply of married women a recent reform to the uk unemployment insurance ui system has reduced the duration of entitlement from 12 to six months the ui and welfare systems interact in the uk in such a way that exhaustion of ut for married individuals has potentially large disincentive effects on the labour supply of spouses a model of labour supply is estimated for married women allowing for endogenous unemployment durations of husbands and wives we distinguish between transfer programme induced incentive effects correlation between labour supply and wages within couples complementarity between the leisure times of spouses and a discouraged worker effect

taxation in empirical labour supply models lone mothers in the uk taxation has become an integral part of the empirical specification of labour supply models the opportunity set available to workers is made significantly non linear by the workings of the tax and benefit system and this in turn complicates an individual s optimal choice of labour supply in such a framework the relationship between hours of work gross wages and other income is necessarily non linear moreover the marginal wage and virtual income at any chosen hours of work are an implicit function of the hours choice itself to guarantee a unique solution to this choice problem consumer theory places integrability conditions on the form of wage and income derivatives of labour supply similarly once the problem is made stochastic and econometric methods are utilised to recover unknown parameters a coherency condition is required to define a well behaved econometric model see heckman i 978 and gourieroux et al i980 in the labour supply and taxation framework these two conditions are quite naturally closely related they do however have implications for labour supply specification and the reliability of tax reform simulations based on empirical labour supply models for the case of the linear labour supply model macurdy et al i990 document the potential for misleading results that may occur once a linear model is utilised in a framework with non linear taxation such a specification all but guarantees a global forward sloping labour supply function which is not a requirement of economic theory and is empirically often too restrictive in this paper we focus on two issues the first relates to the specification of a flexible model allowing backward bending labour supply the second issue relates to the statistical coherency of such a model in the presence of non linear taxation the empirical application in this paper concerns the labour supply behaviour of lone mothers in the uk this group face a highly non linear budget constraint the analysis of their labour supply responses is crucial for the design of effective policy reforms we use a labour supply specification suggested by

the rational voter paradox revisited the rational voter paradox rests on two fundamental assumptions first that voters are risk neutral second that voters make decisive vote computations the implications of maximizing the expected utility of wealth rather than the utility of expected wealth are explored the validity of decisive vote computations are examined through concepts of weak and strict in the limit free rider assumptions the paper proposes a margin of victory model of voting behavior based on information levels and the political division of labor

unemployment benefit duration and incentives in britain how robust is the evidence abstract recent years have seen considerable advances in the econometric treatment of micro data in models of unemployment duration this paper examines the evidence from such models concerning the effects of unemployment benefits on incentives to work in britain widely accepted results of a small but significant benefit effect are reproduced using a sample of 1 231 unemployed men however these results are only found when benefit receipt is assumed to follow a hypothetical pattern which is shown to be unrealistic and over generous when more realistic calculations of benefits are used no benefit effect is found the paper also argues that search theory is of little help in determining the choice between competing functional forms and explanatory variables results concerning benefits are shown to be sensitive to the latter