Three Essays on Labor Supply

Abstract

In Chapter 1 of this doctoral thesis, I develop a dynamic discrete choice model of female labor supply and fertility to evaluate parental leave policies based on the German Socio-economic Panel (Wagner et al., 2007). Building on recent empirical evidence on the connection between fertility and unemployment risk, I emphasize the importance of labor market frictions and job security for dynamic fertility and labor supply decisions of women. To quantify the effect of parental leave job protection and parental leave benefits, I simulated counter-factual remaining life-cycles for synthetic samples of women affected by the reforms at different ages. I find that a reduction in the maximum job protection period from 3 to 2 years would decrease remaining fertility by 4.1 % for the sample affected at age 20, and an extension of the benefit period from 1 to two years would increase fertility by 4.7 %. Life-cycle employment effects are rather small. Effects on the employment rate are not persistent but effects on the part-time share among female employees are. I conclude that reform effects on parental leave durations tend to overestimate the employment effects of parental leave reforms. On the other hand, usually unobserved effects on total remaining fertility rates seem to be positive for both considered policies.

In Chapter 2, I evaluate the 2001 introduction of the Part-Time and Limited-Term Employment Act (Part-Time Law) in Germany. This reform granted a legal claim to reduce work hours for employees in establishments more than 15 employees. Using employees of establishments with up to 15 employees as a control group, I estimate the causal effect of the reform on transitions to part-time work and subsequent employment in a difference-in-differences setting. I find that the Part-Time Law significantly increased transitions to part-time work for female employees above the age of 50 (by 1-2.5 percentage points). Moreover, I find evidence of increased subsequent employment in this age group (1 percentage point).

In Chapter 3, my coauthors and I analyze how subjective expectations about wage opportunities influence the job search decision. We match data on subjective wage expectations with administrative employment records. The data reveal that unemployed individuals overestimate their future net re-employment wage. In particular, the average individual does not anticipate that wage offers decline in value with their elapsed time out of employment. How does this optimism affect job finding? We analyze this question using a structural job search framework. Results show that wage optimism has highly dynamic effects. On average, optimism increases the duration of unemployment by about 6.5 %.