Lifecycle Labor Supply Anticipation Effect
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.
Picture this
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.
What the evidence says
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.
- Who
- N = 42,358 low-income, working-age, able-bodied adults applying to the Chicago Housing Authority Corporation wait-list lottery; Chicago, Illinois.
- How
- Event-study econometric tracking comparing pre-offer quarters of lottery applicants against randomized control group outcomes using state administrative panel data.
What to do
Evaluate pre-benefit waiting periods in social programs to capture temporary intertemporal labor supply increases prior to program enrollment.
From the source
"We also see a slight increase in average labor supply for those families who expect to receive a voucher in the future, consistent with predictions from the lifecycle labor supply model that people may shift work effort towards periods when their net wage is relatively higher."
The Effects of Housing Assistance on Labor Supply: Evidence from a Voucher Lottery