Minimum income and household labour supply

Francesca Carta () and Fabrizio Colonna ()
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Francesca Carta: Bank of Italy
Fabrizio Colonna: Bank of Italy

No 1479, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

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.

Keywords: household labour supply; female labour force participation; labour earnings; transfers; tax-system (search for similar items in EconPapers)
JEL-codes: H31 I38 J21 J22 J31 (search for similar items in EconPapers)
Date: 2025-03
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