Long-term Changes in Married Couples' Labor Supply and Taxes: Evidence from the US and Europe Since the 1980s

Abstract

We document the time-series of employment rates and hours worked per employed by married couples in the US and seven European countries (Belgium, France, Germany, Italy, the Netherlands, Portugal, and the UK) from the early 1980s through 2016. Relying on a model of joint household labor supply decisions, we quantitatively analyze the role of non-linear labor income taxes for explaining the evolution of hours worked of married couples over time, using as inputs the full country-and year-specific statutory labor income tax codes. We further evaluate the role of consumption taxes, gender and educational wage premia, and the educational composition. The model is quite successful in replicating the time series behavior of hours worked per employed married woman, with labor income taxes being the key driving force. It does however capture only part of the secular increase in married women's employment rates in the 1980s and early 1990s, suggesting an important role for factors not considered in this paper. We will make the non-linear tax codes used as an input into the analysis available as a user-friendly and easily integrable set of Matlab codes. JEL-Codes: E600, H200, H310, J220.

The Decline in the U.S. Labor Force Participation Rate: A Literature Review

“…Guner et al (2012aGuner et al ( , 2012b apply this logic to analyze potential reforms to the U.S. tax system (proportional income tax and a switch from joint to separate filing for married couples) and find that those reforms would increase FLFP. A few papers measure the importance of taxes to explain labor supply differences across countries (Chakraborty et al, 2015;Bick and Fuchs-Schündeln, 2018;Bick et al, 2019). No research has explicitly explored the quantitative importance of the tax structure in female LFP in the period after 2000.…”

Hours Worked Across the World: Facts and Driving Forces

“…When focusing on Europe and the US (Bick and Fuchs-Schündeln, 2017;Bick and Fuchs-Schündeln, 2018;Bick et al, 2018b;Bick et al, 2019), the data sources are the European Union Labour Force Survey for the European countries, and the Current Population Survey for the US. The European Union Labour Force Survey is a collection of annual labour force surveys from different European countries.…”

“…In Fuchs-Schündeln (2017, 2018) and Bick et al (2018b), we build a macroeconomic model of labour supply featuring joint utility maximisation of couples, and feed into this model the full country-specific nonlinear tax codes, which also take into account the tax treatment of married couples. We also make these tax codes available in a user-friendly format on our webpages, in addition to the data on hours (see for example here: https://sites.google.com/site/brueggemannbettina/datatax-codes).…”

“…4 We omit Switzerland in these analyses. 5 In Bick and Fuchs-Schündeln (2017 and 2018), we focus on the pre-crisis cross-section, while Bick et al (2018b) provide a time-series analysis from the early 1980s to 2015. 6 The US system is similar to the German one in equating the marginal tax rates of both spouses.…”

“…The UK lies close to the top of the European countries with 1180 annual hours. Mean hours worked per person in Southern Europe are the lowest (952 hours), while the mean hours worked per person across the other European regions are quite similar, ranging Source:Bick et al, 2019.…”