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Liquidity constraints and labor supply

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  • Rossi, Mariacristina
  • Trucchi, Serena

Abstract

In this paper we shed some light on how restrictions in financial markets, the so-called liquidity constraints, might act in affecting labour supply decisions of Italian workers. One way to neutralize the existence of binding liquidity constraints is simply by supplying additional labor, instead of reducing consumption. We estimate whether resorting to additional labor supply as a smoothing consumption device is at work by using the Italian Survey of Households Income and Wealth (SHIW). The longitudinal dimension of the SHIW dataset allows us to control for individual unobserved heterogeneity. We also use an IV strategy to address the endogeneity of our measure for credit constraints in labor supply equations due to time varying factors.

Suggested Citation

  • Rossi, Mariacristina & Trucchi, Serena, 2016. "Liquidity constraints and labor supply," European Economic Review, Elsevier, vol. 87(C), pages 176-193.
    • Handle: RePEc:eee:eecrev:v:87:y:2016:i:c:p:176-193
    DOI: 10.1016/j.euroecorev.2016.05.001
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    Cited by:

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    2. Gao,Nan & Ma,Yuanyuan & Xu,L. Colin, 2020. "Credit Constraints and Fraud Victimization : Evidence from a Representative Chinese Household Survey," Policy Research Working Paper Series 9460, The World Bank.
    3. Zhou, Zhengyi, 2022. "The effects of state-led relocation on labor market participation: Evidence from China," China Economic Review, Elsevier, vol. 73(C).
    4. David Aristei & Cristiano Perugini, 2022. "Credit and income mobility in Russia," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(3), pages 639-669, September.
    5. Ian Fillmore & Trevor Gallen, 2019. "Heterogeneity in Talent or in Tastes? Implications for Redistributive Taxation," 2019 Meeting Papers 94, Society for Economic Dynamics.
    6. Osmani, Ahmad Reshad & Okunade, Albert A., 2019. "Cancer survivors in the labor market: Evidence from recent US micro-panel data," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 80, pages 202-221.
    7. Amparo Nagore García & Mariacristina Rossi & Arthur Soest, 2021. "Retirement of the self-employed in the Netherlands," Small Business Economics, Springer, vol. 56(1), pages 385-402, January.
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    9. Amparo Nagore Garcia & Mariacristina Rossi & Arthur van Soest, 2018. "Labour Market Decisions of the Self-Employed in the Netherlands at the Statutory Retirement Age," Working papers 057, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    10. Anil Kumar & Che-Yuan Liang, 2024. "Labor Market Effects of Credit Constraints: Evidence from a Natural Experiment," American Economic Journal: Economic Policy, American Economic Association, vol. 16(3), pages 1-26, August.
    11. Choi, Sangyup & Shin, Junhyeok, 2023. "Household indebtedness and the macroeconomic effects of tax changes," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 22-52.
    12. Feng, Dawei & Zeng, Bing & Hu, Haoyu, 2023. "Access to credit cards and household labor participation: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PD).
    13. Demirel, Ufuk Devrim, 2021. "The short-term effects of tax changes: The role of state dependence," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 918-934.
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    15. Perugini, Cristiano, 2020. "Patterns and drivers of household income dynamics in Russia : The role of access to credit," BOFIT Discussion Papers 11/2020, Bank of Finland, Institute for Economies in Transition.
    16. Abo-Zaid, Salem & Kamara, Ahmed H., 2020. "Credit Constraints and the Government Spending Multiplier," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).

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    More about this item

    Keywords

    Labor supply; Liquidity constraints; Life cycle; Panel data;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior

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