Lifecycle Labor Supply Anticipation Effect

In Simple Words

Imagine knowing that a heavy tax will start deducting money from earnings in two years. Because work pays more today than it will after the tax takes effect, a worker puts in extra hours now while net pay remains high, saving energy for when net wages drop later.

Research question

When social benefit programs operate long waiting lists, applicants anticipate future wage reductions from upcoming benefit phase-out taxes, shifting their timing of work effort.

Participants

N = 42,358 low-income, working-age, able-bodied adults applying to the Chicago Housing Authority Corporation wait-list lottery; Chicago, Illinois.

Study Design

Event-study econometric tracking comparing pre-offer quarters of lottery applicants against randomized control group outcomes using state administrative panel data.

Results

Applicants awaiting a voucher offer increased employment by 0.6 percentage points (approximately 1 percent relative to the control mean) during the pre-offer waiting period prior to receiving voucher assistance.

Takeaway

Evaluate pre-benefit waiting periods in social programs to capture temporary intertemporal labor supply increases prior to program enrollment.

Read alongside the research

Plain-English glossary

Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.

Percentage points

The difference between two percentages.

ExampleA rise from 40% to 50% is 10 percentage points. Relative to the starting value, that is a 25% increase.

Office for National Statistics · Percentages ↗Read more about percentage points →

Related findings

• Advance Notification Anticipation Effect →Labour & employment

  Imagine being told weeks in advance that a strict inspector will audit your progress on a specific date. To avoid the stress and potential penalties of the audit, you work harder and accept acceptable options earlier to resolve the situation before the audit date arrives.

• Age-Dependent Labor Supply Reduction Near Retirement →Labour & employment

  Imagine runners in a marathon. Young runners who receive a boost of energy mid-race keep running with a slightly adjusted pace, but runners who are already within sight of the finish line use that extra energy to cross the line early and sit down on the bench immediately.

• Calibrated Labor Supply Elasticity of Housing Subsidies →Labour & employment

  By comparing workers who received housing coupons against workers who did not, economists calculate how much people reduce work when given unearned income (income elasticity) versus when their effective hourly take-home pay drops (compensated wage elasticity).

• Disutility of Leisure and Wage Discipline Effect →Labour & employment

  Imagine a resort club where membership used to allow relaxing all day for free. If the club manager introduces mandatory daily chore shifts for members, staying in the club becomes much less attractive.