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Wage Subsidies and Skill Formation: A Study of the Earned Income Tax Credit
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... In October 1999, FC became WFTC and the government estimated twice as many families to be in receipt of WFTC as received by FC. Table 1 how the number of claimants changed from 1988 to 2002 9 . There were 1.1 million claims for WFTC in August 2000, which increased to 1.3 million claims in August 2001. ...
... In addition to this the take-up rate of WFTC by 2002 was estimated to be 72-76% compared to 66-70% under FC. The take-up rate was 9 In April 2003, WFTC changed again to the Working Tax Credit. ...
This paper proposes a simple general equilibrium model to investigate the impact of an earned income tax credit on the equilibrium gross wage. Under the assumption that the employer has knowledge, or at least awareness, of which of her employees are eligible, she may share in the incidence of the tax credit by cutting the gross wage. Moreover, given the level of substitutability between eligible employees and non-eligible employees, there may be a spill-over eect onto the wages of both eligible and non-eligible workers. The empirical investigation examines the introduction of the Working Families'Tax Credit in the UK in 1999 using a two stage regression-based method and data on women. This paper …nds evidence to suggest that women eligible for the tax credit do face a wage cut relative to those not eligible. The size of the cut depends inversely on how close their actual wage is to the UK's National Minimum Wage but positively on how relevant the WFTC is to the household income and so aecting most severely the claimants in the middle of the wage distribution.
... Further, the pro tability of expensive inventions depends on learning, because production costs depend on the accumulated learning experience. For individuals, past work experience is conducive to increasing worker's discoveries (Altu and Miller, 1998;Cossa et al., 2000). Chang et al. (2002) points out that past work experience helps people accumulate skills. ...
Using the firm-level data of the Chinese industrial sector from 1998 to 2010, this study investigates the impact of the previous environmental protection experience of prefecture-level Communist Party secretaries on the COD regulation within the secretaries’ respective jurisdictions. The study finds that the secretaries’ previous environmental protection experience has reduced the COD discharge intensity. The duration of the previous environmental protection experience is selected as an instrumental variable and the endogeneity is further addressed; the research conclusion remains unchanged. However, this negative impact only lasts for two years and presents an unclear long-term impact. The negative effect on COD discharge intensity caused by the previous environmental protection experience is affected by the mandatory regulation pressure from the central government and the overall polluting density of the sub-sectors. Secretaries with previous environmental protection experience do not reduce the COD discharge intensity by using the punishment mechanism of increasing sewage charges. The secretaries, instead, encourage enterprises to use clean production technology, save water resources, and reduce the produced COD level. Also, the secretaries place an emphasis on the treatment of wastewater pollutants, thus reducing the COD discharge intensity. The conclusions of this study can provide decision-making reference for the selection and training of local officials, with the goal of environmental regulation.
... This will depend largely on the relative importance of the passive return to work experience, which occurs automatically once in work, in comparison with the return to 'active' human capital investment, which requires effort or time inputs by the individual. Cossa, Heckman and Lochner (1999) make this point forcibly. However, evidence of steep wage progression among low skilled workers is rare. ...
Alongside the growth in overall employment and the steady rise in average real incomes over the 1990s, the UK experienced a concentration of worklessness and low pay among certain groups in society. This was particularly acute for low-income families with children, but was also reflected in the frequency of spells out of work by the young and by the falling attachment to the labour market of older men. In response, the focus of welfare policy shifted towards "making work pay". The Working Families Tax Credit and the New Deal were central among the policy options that were implemented. This lecture considers the validity of the arguments underlying this shift in welfare policy and, drawing on evidence from the UK and abroad, asks: which policies work and why? It examines two broad classes of policy options that are motivated by the make work pay objective: active labour market programmes that involve wage subsidies together with improved job matching; and earned income tax credits that supplement wages for working low-income families. These programmes have many features in common. They are also similar to many policy reforms in Europe and North America. Using the evaluation of the UK reforms this lecture brings empirical evidence into the debate on the effectiveness of these programmes and assesses which aspects of the design of welfare to work programmes work well and which aspects could be improved.
... Therefore, the government can increase an agent's and Kapicka (2009). Topel (1990), Cossa et al. (1999), Altu˘ g and Miller (1998) provide empirical evidence of LBD. The authors show that past hours worked and length of current job tenure impact current wages. ...
This paper considers the impact of endogenous human capital accumulation on optimal tax policy in a life cycle model. Including endogenous human capital accumulation, either through learning-by-doing or learning-or-doing, is analytically shown to create a motive for the government to use age-dependent labor income taxes. If the government cannot condition taxes on age, then it is optimal to use a tax on capital in order to mimic such taxes. Quantitatively, introducing learning-by-doing or learning-or-doing increases the optimal tax on capital by forty or four percent, respectively. Overall, the optimal tax on capital is thirty five percent higher in the model with learning-by-doing compared to the model with learning-or-doing implying that how human capital accumulates is of significant importance when determining the optimal tax policy.
... Dans cette perspective, les stratégies d'innovation technologique et d'allégement des charges sur les bas salaires peuvent être antinomiques, car l'allégement sur les bas salaires décourage l'amélioration des qualifications et réduit les capacités d'innovation.L 'impact des allégements de charges sur l'accumulation de connaissances et de savoir-faire En réalité, les allégements de charges ont des conséquences complexes, jouant dans des sens différents sur l'accumulation de connaissances et de savoir-faire. Il apparaît, en effet, que les modifications du profil des rémunérations et des perspectives d'emploi induites par les allégements de charges sur les bas salaires ont les conséquences suivantes (voirCossa et al. [1999], pour une discussion plus approfondie, et l'analysede Granier et Nyssen [1996], qui intègre les comportements d'éducation des travailleurs et d'innovation des entreprises) :Premièrement, il ressort que les rendements des études qui permettent de postuler à des emplois dont le nombre et les Revue française d'économie, n° 3/vol XVII ...
[fre] Cet article analyse les conséquences des exonérations de cotisations sociales sur les bas salaires en France. L'utilisation d'une maquette du marché du travail français permet d'examiner les conséquences d'extensions du dispositif actuel. On montre qu'un reprofilage des cotisations, avec un abaissement significatif des taux de cotisations ciblé sur les bas salaires, permettrait d'améliorer à la fois l'efficacité économique et l'équité, en favorisant l'emploi des travailleurs les moins qualifiés, sans détériorer les perspectives de gains des travailleurs plus qualifiés. Plus concrètement, cet article suggère qu'il est souhaitable de réduire les cotisations patronales de 30 points de pourcentage supplémentaires au niveau du Smic. En outre, il est suggéré qu'une telle mesure, ciblée sur une fenêtre étroite de salaires, peut être entièrement financée par un reprofilage des cotisations sociales sans réduire le pou- voir d'achat des moyens et hauts salaires. [eng] This paper analyzes the consequences of reductions in social contributions on low wages in France. A model of the French labor market allows us to study the consequences of a spreading of the system currently in place, that lowers employers' social contributions on low wages. It is shown that a significant reduction in social contributions targeted on low wages, financed by taxes on the wages of skilled workers, is likely to improve both economic efficiency and equity by increasing the number of low skilled jobs without decreasing the expected gains of skilled workers. Namely, this paper suggests that it is desirable to decrease employers social contributions by 30 percentage points at the level of the minimum wage. Moreover, it is suggested that such a measure, targeted on a narrow interval of wages, can be entirely financed by an increase in taxes on the wages of skilled workers without reducing the net wages of skilled workers.
This thesis focus on the evaluation of social programmes, a subject attracting renewed interest given the deteriorating labour market position of unskilled workers in many industrialised countries and the large financial requirements programmes designed to move individuals away from welfare place on public budgets. Non-experimental methods face the difficult missing counterfactual problem, where individuals are either participants or non-participants, not both simultaneously. I use different approaches to assess the impact of interventions using the New Deal for Young Persons (NDYP) as role model. This UK mandatory program involves extensive job-search assistance and options that include tax credit schemes and education subsidies. Chapters 2 and 3 address the evaluation of direct effects of interventions. I start by reviewing the recent methodological developments discussing social experiments, natural experiments, matching methods and instrumental variables in chapter 2. Chapter 3 presents the evaluation of the employment effect of the NDYP. Identification exploits the differential timing of the programme introduction across regions and age-related eligibility rules and estimation uses a variety of techniques combining "difference in differences" and matching procedures. Being a global programme of wide implementation, the NDYP is expected to impact on prices, indirectly affecting the whole economy and challenging the validity of counterfactuals constructed from observed data. Chapters 3 and 4 focus on the structural overall evaluation of a stylised version of the NDYP initiative, avoiding "no-indirect-effects" assumptions. A general equilibrium model of savings, skills and human capital with labour supply is developed within an overlapping generations set up, allowing for idiosyncratic uncertainty under risk aversion, fixed costs and discrete working and studying choices. The model's parameters are identifiable with currently available data and a procedure to estimate the human capital production function is proposed. The model was numerically solved for the SS and the effects of tax credit policies were simulated.
This paper examines the impact of increased productivity on prices, output, real wage rate and balance of payments. Two alternative forms of productivity are considered: (1) cost saving for a given output level and (2) production increase without a direct decrease in employment. By making use of a simple model of a small open economy that includes some key features of less developed economies, it is shown that increased productivity with monetary and fiscal restraint helps the economy to improve its key macroeconomic variables, such as output, employment, balance of payments, and real wages both in the short and the medium run. Simulation exercises while treating efficiency as an endogenous variable by invoking learning by doing mechanism are also presented. We simulated the model for three kinds of shocks: (1) efficiency shock, (2) tax rate shock, and (3) price of foreign inputs shock. Our results show that all the three shocks would cause output and real wage rate to increase both in the short and the medium run. Similarly in most cases we found that inflation would come down and balance of payments either improve or deteriorate slightly in the short and the medium run. In general, the findings of our paper does not support the fear that increased productivity would lower the real wages of labour and have negative impact on the economy in the long run. The paper concluded while hinting at different measures which might improve productivity.
One measure of the health of the Social Security system is the difference between the market value of the trust fund and the present value of benefits accrued to date. How should present values be computed for this calculation in light of future uncertainties? We think it is important to use market value. Since claims on accrued benefits are not currently traded in financial markets, we cannot directly observe a market value. In this paper, we use a model to estimate what the market price for these claims would be if they were traded. In valuing such claims, the key issue is properly adjusting for risk. The traditional actuarial approach – the approach currently used by the Social Security Administration in generating its most widely cited numbers - ignores risk and instead simply discounts “expected†future flows back to the present using a risk-free rate. If benefits are risky and this risk is priced by the market, then actuarial estimates will differ from market value. Effectively, market valuation uses a discount rate that incorporates a risk premium. Developing the proper adjustment for risk requires a careful examination of the stream of future benefits. The U.S. Social Security system is “wage-indexedâ€: future benefits depend directly on future realizations of the economy-wide average wage index. We assume that there is a positive long-run correlation between average labor earnings and the stock market. We then use derivative pricing methods standard in the finance literature to compute the market price of individual claims on future benefits, which depend on age and macro state variables. Finally, we aggregate the market value of benefits across all cohorts to arrive at an overall value of accrued benefits. We find that the difference between market valuation and “actuarial†valuation is large, especially when valuing the benefits of younger cohorts. Overall, the market value of accrued benefits
This paper develops and estimates an overlapping generations general equilibrium model of labor earnings, skill formation and physical capital accumulation with heterogeneous human capital. The model analyzes both schooling choices and post-school on-the-job investment in skills in a framework in which different schooling levels index different skills. A key insight in the model is that accounting for the distinction between skill prices and measured wages is important for analyzing the changing wage structure, as they often move in different directions. New methods are developed and applied to estimate the demand for unobserved human capital and to determine the substitution relationships in aggregate technology among skills and capital. We estimate skill-specific human capital accumulation equations that are consistent with the general equilibrium predictions of the model. Using our estimates, we find that a model of skill-biased technical change with a trend estimated from our aggregate technology is consistent with the central feature of rising wage equality measured by the college-high school wage differential and by the standard deviation of log earnings over the past 15 years. Immigration of low skill workers contributes little to rising wage inequality. When the model is extended to account for the enlarged cohorts of the Baby Boom, we find that the same parameter estimates of the supply functions for human capital that are used the explain the wage history of the last 15 years also explain the last 35 years of wage inequality as documented by Katz and Murphy (1992).
We survey methods for using micro data in the calibration of dynamic general equilibrium models.
This paper models the role of the labor market in the transmission and acquisition of skills and knowledge, based on the hypothesis that indivduals learn from their working experiences. The problem is cast in terms of an implicit market for learning opportunities that is dual to the market for jobs. Optimum choices in this setting have implications for the evolution of earnings and occupational patterns over the workers' lifetimes and provide the basis for a theory of occupational mobility. Several implications of the model, including those for occupational discrimination against minorities, are also discussed.
This paper examines the impact of the Tax Reform Act of 1986 (TRA86), which included an expansion of the earned income tax
credit, on the labor force participation and hours of work of single women with children. We identify the impact of TRA86
by comparing the change in labor supply of single women with children to the change for single women without children. We
find that between 1984–1986 and 1988–1990, single women with children increased their relative labor force participation by
up to 2.8 percentage points. We observe no change in the relative hours worked by single women with children who were already
in the labor force.
A dynamic model of labor supply under uncertainty with endogenous human capital accumulation is developed and estimated using 1968-81 Panel Study of Income Dynamics male panel data. Given a learning-by-doing technology for human capital investment and a translog utility function, structural parameters for preferences and technology are estimated from the orthogonality conditions implied by the Euler equations assuming rational expectations. The parameter estimates conform to economic theory. Simulations of the model suggest that the intertemporal labor supply elasticity with endogenous wages will rise over the lifecycle, producing different policy implications than typical models with exogenous wages and constant intertemporal elasticities. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.