I am currently working on a research paper on the labor supply effects of a mini
ID: 1116376 • Letter: I
Question
I am currently working on a research paper on the labor supply effects of a minimum wage increase. Specifically, I’m interested in whether low-income women with a child and a job who receive a childcare subsidy respond differently to a minimum wage increase than low-income women with a child and a job who do not receive a childcare subsidy. In most states in the U.S., childcare subsidies phase out as earnings increase, so individuals pay more in childcare as earnings increase until eventually the voucher is lost. Further, there is usually a waiting list to receive a voucher, and if one loses a voucher because earnings increase too much, then that person has to return to the bottom of the waiting list. Of course, to be on the waiting list, a low-income mother has to know that subsidies are available and decide to fill out the applications involved in getting the subsidy. I’ve decided to compare low-income mothers who receive a subsidy to low-income mothers who are eligible to receive a subsidy, but do not. In the language of Mostly Harmless Econometrics, women who receive a childcare subsidy are receiving the treatment (Di = 1) and women who are eligible but do not receive a subsidy are the control (or the untreated, Di = 0). There is a selection problem here. Describe it.
Explanation / Answer
Wage increase has a different response on the different group of people due to ( cultural/ social/ inflation/ number of dependant on the wage earner/ income level of the labor and living condition in and around the working environment)
Income level has an important role to play in this case thereon in the question, as we know in economics if the income level is high or there is a group with a certain amount of the rental income will have the higher rate of waiting period to stay ideal for the desired wage rise. ( Waiting Unemployment) thus in the selection problem the person will decide on joining the job will significantly rest upon the level of his/her income ( dependents are of equal weight as a child).
Case 1- Low-income mother with a child and subsidy. and another side the respondent is a low-income mother with a child and no subsidy.
the provision of subsidy in quantity term goes on decreasing as the wage rise gradually and finished after the overall wage rise to push the worker in higher income group or if wage rise is not matched with the higher income group then also the person is categorized as low income but will be in waiting line for the subsidy voucher.
the subsidy is just a voucher that is given to low-income earners but not a universal scheme for low earners, one has to wait for their turn to come.
thus here in this case subsidy is passing through the job side. now the comparison is between the behavioral response of low-income mother both having a child but one who gets a subsidy and one does not get a subsidy to wage rise.
mother with a subsidy voucher will apply for the job irrespective of the wage rise as the extra expenses are compensated by voucher anyway.
and mother who does not have the voucher and is in the waiting line for the expectation of that will wait even when a marginal wage rise.
but if the low-income mothers have no other sources of livelihood then irrespective subsidy available or not both will apply for the job at a time. thus the level of rental or other sources of income decides the response to any wage rise.
Effect of the Supply of Labour with wage rise in above case.
1) labor supply will rise as Di=1 will join the pool because of the voucher and wage rise both have a pull effect and Di=0 will also join the pool as the wage rise even in absence of voucher there is wage rise.
there will always be the random effect of many other variables in the labour market which hinders the supply ( like number of vacancies if less then less or no effect/ if there are more mother on higher income side then also no such significant effect will be on the supply side / if there are other sources of income or rental income then also no effect on supply for wage rise.
labor supply will rise with or without wage rise(pool of reserve) if the level of income of mother is low or no other sources of rental income.
in our case, both groups of the mother (with a voucher / without a voucher) will apply for the job by sensing wage rise.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.