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Minimum income and household labour supply

Author

Listed:
  • Francesca Carta

    (Bank of Italy)

  • Fabrizio Colonna

    (Bank of Italy)

Abstract

This paper examines the impact of Guaranteed Minimum Income (GMI) schemes on work incentives at the household level. We show that these schemes create strategic complementarities between partners' employment decisions. When one partner is non-employed or earns a low wage, the household is more likely to receive the benefit, which then discourages the other partner from working to avoid losing the benefit. The disincentive to work instead does not apply to partners of high earners whose income exceeds the programme threshold. This leads partners to coordinate their decisions so that both are non-employed. The negative impact of the GMI on labour supply is therefore more pronounced in economies with many single-earner households. Focusing on Italy, where the employment rate of married women is low and a relatively generous GMI programme was introduced in 2019, we use a structural labour supply model to estimate that the GMI would primarily reduce the employment rate of married men with non-working wives and increase the number of households in which neither partner works. Married women would be less affected due to the high employment rate of their husbands.

Suggested Citation

  • Francesca Carta & Fabrizio Colonna, 2025. "Minimum income and household labour supply," Temi di discussione (Economic working papers) 1479, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1479_25
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    File URL: https://www.bancaditalia.it/pubblicazioni/temi-discussione/2025/2025-1479/en_tema_1479.pdf
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    More about this item

    Keywords

    household labour supply; female labour force participation; labour earnings; transfers; tax-system;
    All these keywords.

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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