This dissertation decomposes labor supply into
three margins step by step and studies the relative
effects of two adverse labor market institutes on labor
supply. Labor supply in Europe declined about 30%
relative to the US over the past 3 decades. The decline in
labor supply comes from both hours worked per worker
and employment. Some studies attributed the declining
hours worked to higher labor taxes, while other studies
accredited high unemployment rates in Europe to
generous non-employment benefits. Fang and Rogerson
(2009) is the only exception which incorporates two
margins of labor supply.
Fang and Rogerson (2009) embedded working
hours into Pissarides matching model and found that
higher labor taxes decrease both hours per worker and
employment. The first essay of this dissertation starts
from Fang and Rogerson (2009) to compares the relative
effects of increases in labor taxes and non-employment
benefits on hours per worker and employment and
quantifies them.
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