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Liquidity constraints and labor supply

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  • Rossi, Mariacristina
  • Trucchi, Serena

Abstract

In this paper we shed some light on how restrictions in financial markets, the so-called liquidity constraints, might act in affecting labour supply decisions of Italian workers. One way to neutralize the existence of binding liquidity constraints is simply by supplying additional labor, instead of reducing consumption. We estimate whether resorting to additional labor supply as a smoothing consumption device is at work by using the Italian Survey of Households Income and Wealth (SHIW). The longitudinal dimension of the SHIW dataset allows us to control for individual unobserved heterogeneity. We also use an IV strategy to address the endogeneity of our measure for credit constraints in labor supply equations due to time varying factors.

Suggested Citation

  • Rossi, Mariacristina & Trucchi, Serena, 2016. "Liquidity constraints and labor supply," European Economic Review, Elsevier, vol. 87(C), pages 176-193.
  • Handle: RePEc:eee:eecrev:v:87:y:2016:i:c:p:176-193
    DOI: 10.1016/j.euroecorev.2016.05.001
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    Cited by:

    1. Giné, Xavier & Martinez-Bravo, Monica & Vidal-Fernández, Marian, 2017. "Are labor supply decisions consistent with neoclassical preferences? Evidence from Indian boat owners," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 331-347.
    2. Kumar, Anil & Liang, Che-Yuan, 2018. "Labor Market Effects of Credit Constraints: Evidence from a Natural Experiment," Working Papers 1810, Federal Reserve Bank of Dallas, revised 01 Sep 2018.

    More about this item

    Keywords

    Labor supply; Liquidity constraints; Life cycle; Panel data;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior

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