Author: Brendan Epstein / Topic: Welfare

Author:: Brendan Epstein and Miles S. Kimball
Publication Date:: 06-2014
Content Type:: Commentary and Analysis
Institution:: Board of Governors of the Federal Reserve System
Abstract:: We develop a theory that focuses on the general equilibrium and long-run macroeconomic consequences of trends in job utility. Given secular increases in job utility, work hours per capita can remain approximately constant over time even if the income effect of higher wages on labor supply exceeds the substitution effect. In addition, secular improvements in job utility can be substantial relative to welfare gains from ordinary technological progress. These two implications are connected by an equation flowing from optimal hours choices: improvements in job utility that have a significant effect on labor supply tend to have large welfare effects.
Topic:: Labor Issues, Economic Theory, Welfare, Social Services, and Wage Growth
Political Geography:: Global Focus

Author:: Brendan Epstein and Ryan Nunn
Publication Date:: 04-2013
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: A large public finance literature argues that taxable income elasticities are a sufficient statistic for the social welfare consequences of taxation. We develop calibrations that show such deadweight loss calculations are overestimates proportional to the quantitative significance of heterogeneity in amenities across job matches. In particular, the endogenous supply of amenities can substantially exacerbate this overestimation in both static and dynamic environments. Given the possibility of gradual migration of workers into more amenity-focused job matches in response to tax increases, welfare calculations based on long-run taxable income elasticities can be more misleading than those based on short-run elasticities.
Topic:: Governance, Tax Systems, Fiscal Policy, Welfare, and Social Services
Political Geography:: Global Focus

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