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Labour Supply, Search and Taxes

  • Alan Manning

Classical labour supply theory is one of the most sophisticated parts of labour economics. Yet, there is no compelling theoretical reason to believe in an outcome on a classical labour supply curve and it is unclear whether it is a good empirical description of the way in which labour markets actually work. This paper uses the techniques of search theory to analyse the impact of changes in the tax system on incentives to work when individuals do not have flexibility of hours within jobs. It is shown how the traditional comparative statics are of some use but are rarely the whole story and some comparative statics results are surprising. For example, it is shown how a revenue-neutral increase in marginal tax rates will increase incentives to work.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0449.

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Date of creation: Feb 2000
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Handle: RePEc:cep:cepdps:dp0449
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Narendranathan, Wiji, 1993. "Job Search in a Dynamic Environment--An Empirical Analysis," Oxford Economic Papers, Oxford University Press, vol. 45(1), pages 1-22, January.
  2. Blundell, Richard & Ham, John & Meghir, Costas, 1998. "Unemployment, discouraged workers and female labour supply," Research in Economics, Elsevier, vol. 52(2), pages 103-131, June.
  3. Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, vol. 49(4), pages 945-63, June.
  4. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  5. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  6. Joseph Altonji & Christina Paxson, 1990. "Labor Supply, Hours Constraints and Job Mobility," Working Papers 651, Princeton University, Department of Economics, Industrial Relations Section..
  7. Stewart, M.B. & Swaffield, J.K., 1996. "Constraints on the Desired Hours of Work of British Men," The Warwick Economics Research Paper Series (TWERPS) 468, University of Warwick, Department of Economics.
  8. Ljungqvist, Lars & Sargent, Thomas J, 1995. "Welfare States and Unemployment," Economic Theory, Springer, vol. 6(1), pages 143-60, June.
  9. Blundell, Richard William & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," CEPR Discussion Papers 149, C.E.P.R. Discussion Papers.
  10. Burdett, Kenneth, et al, 1984. "Earnings, Unemployment, and the Allocation of Time over Time," Review of Economic Studies, Wiley Blackwell, vol. 51(4), pages 559-78, October.
  11. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  12. Ljungqvist, Lars & Sargent, Thomas J., 1995. "The Swedish unemployment experience," European Economic Review, Elsevier, vol. 39(5), pages 1043-1070, May.
  13. Christopher Pissarides, 1997. "The impact of employment tax cuts on unemployment and wages : the role of unemployment benefits and tax structure," LSE Research Online Documents on Economics 2332, London School of Economics and Political Science, LSE Library.
  14. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-21, May.
  15. Narendranathan, Wiji & Nickell, Stephen, 1985. "Modelling the process of job search," Journal of Econometrics, Elsevier, vol. 28(1), pages 29-49, April.
  16. Card, David, 1990. "Labor supply with a minimum hours threshold," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 33(1), pages 137-168, January.
  17. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
  18. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February.
  19. Pissarides, Christopher A, 1983. "Efficiency Aspects of the Financing of Unemployment Insurance and Other Government Expenditure," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 57-69, January.
  20. Ham, John C, 1982. "Estimation of a Labour Supply Model with Censoring Due to Unemployment and Underemployment," Review of Economic Studies, Wiley Blackwell, vol. 49(3), pages 335-54, July.
  21. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
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