labor demand


A key attraction of the Earned Income Tax Credit (EITC) is that it encourages
work. But EITC-induced increases in labor supply may drive wages down, permitting
employers of low-skill labor to capture some of the intended transfer and negatively
impacting workers in the same labor markets who are ineligible for the credit. I
exploit variation in tax treatment across family types and skill levels to identify the
e¤ect of a large EITC expansion in the mid 1990s on the female labor market, using a
semiparametric reweighting strategy to decompose changes in the wage distribution
into changes in skill-speci c prices and quantities. The EITC expansion induced
many low- and mid-skill single mothers to enter the labor force. Contemporaneous
technical change led to increases in wages, but these were smaller than they would
have been with a stable EITC. Ceteris paribus, low-skill single mothers keep only
70 cents of every dollar they receive through the EITC. Employers of low-skill labor
capture 72 cents, 30 cents from single mothers plus 43 cents from ineligible (childless)
workers whose after-tax incomes fall when the EITC is expanded. The net transfer
to workers is less than a third of the amount spent on the program.

Year of Publication
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Citation Key
Rothstein, J. (2005). The Mid-1990s EITC Expansion: Aggregate Labor Supply Effects and Economic Incidence. Retrieved from (Original work published October 2005)
Working Papers

Standard models of dynamic labor demand rely on the presence of
adjustment costs to explain the observed smoothness in employment patterns,
although the costs are often difficult to quantify. The experience rating
feature of the U.S. Unemployment Insurance (UI) system provides a
measurable linear cost of adjustment. Using a unique data set with
administrative data on over 8,000 firms, I estimate the effect of a
UI-induced linear adjustment cost on seasonal labor demand in retail trade.
I find strong support for the large role of adjustment costs in reducing
the employment response of firms to seasonal fluctuations in demand.

Year of Publication
Date Published
Publication Language
Citation Key
Quarterly Journal of Economics, Vol. 108, No. 4, November 1993
Anderson, P. (1992). Linear Adjustment Costs and Seasonal Labor Demand: Unemployment Insurance Experience Rating in Retail Trade. Retrieved from (Original work published January 1992)
Working Papers

A central issue in agricultural taxation and pricing policy analysis is the
degree to which the rural labor market can be characterized by a
competitive supply and demand framework, and if so, what is the magnitude
of the elasticity of demand for labor. The primary focus of this paper is
to determine the degree to which farm household behavior is consistent with
a competitive, clearing external labor market. In order to implement this
program, the old observation that in the absence of labor markets,
household composition is an important determinant of farm labor use, is
formalized by incorporating household structure into the general framework
of agricultural household models. The conditions under which specific
market distortions, such as off—farm employment rationing, will lead to
household demographic composition affecting farm labor demand are derived.
After completing this theoretical discussion, an empirical model is
developed which tests the proposition that household labor demand is
independent of family composition. This model is estimated on a detailed
household / farm data set from rural Java. Several statistical issues,
including measurement error and endogeneity of the market wage are
addressed through the use of appropriate instrumental variable techniques.
I cannot reject the null hypothesis that farm labor allocation decisions
are taken independently of household structure. In addition, farm labor
demand has a well determined negative wage elasticity in the range -0.3 to
-0.5. The results of the research indicate for the case of Java, farm
household behavior is consistent with a clearing, competitive external
labor market.

Year of Publication
Date Published
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Citation Key
Econometrica , Vol. 60, No. 2, March 1992.
Benjamin, D. (1988). Household Composition and Labor Demand: A Test of Rural Labor Market Efficiency. Retrieved from (Original work published November 1988)
Working Papers

This paper presents a survey of recent microeconometric studies of
the labor market, focusing on research that emphasizes the possible
failure of measured wage rates to separate individual supply and demand
decisions. On both the demand and supply sides of the labor market
there is evidence that forces from the other side of the market
influence employment outcomes through some mechanism other than the
wage. On the supply side, this evidence takes the form of correlations
between individual labor supply outcomes and market—level measures of
employment demand in the individual's local labor market. On the demand
side, it takes the form of correlations between firms’ employment decisions and measures of their employees‘ outside opportunities. Both sets
of findings are inconsistent with simple supply and demand models, and
suggest the need for alternative models of the labor market, which
permit an uncoupling of short-run employment decisions from wage rates.

Year of Publication
Date Published
Publication Language
Citation Key
Card, D. (1987). Supply and Demand in the Labor Market. Retrieved from (Original work published November 1987)
Working Papers