Sunday, November 25, 2012

Can someone tell me why my labor demand subsidy is giving me numbers that look like a labor supply subsidy?


Nice, positive employment effects. Nice, negative wage effects. What the hell is going on here? If I were looking at Georgia's EITC program I would be quite happy with all this. But I'm not.


  1. I have an interesting downward sloping supply story associated with the fact that:

    1. My wages aren't really wages... they're monthly earnings (it's derived from UI administrative data so there's really no choice) - so it's got the intensive quantity margin mixed in as well, and

    2. The program requires the creation of full time jobs.

    It's possible that the firms want the tax credit but they're only willing to hire low-wage workers for full-time positions. So average monthly earnings actually falls as they shift towards that type of worker.

    I'm not sure how plausible that is, but it seems possible. I doubt they're claiming this credit for any but the very lowest wage worker, and they don't make much in a month. They could probably pull down an average monthly wage figure.

    I don't know if I believe this... my identification strategy for this one is very strong, I think, but the effect size is still probably pretty small. It's quite possible this is being driven by something odd in my execution of it all.

    But I think that's a plausible enough story to tell if the specification is still right and these results don't go away.

    1. Sorry - that's not a downward sloping supply story... I was reading up on downward sloping supply too (that of course would also explain this) - but I'm not getting my head around how that could be the case here. This explanation - which I think is more plausible - is not a downward sloping supply argument. It's a "your data is fooling you" argument.


All anonymous comments will be deleted. Consistent pseudonyms are fine.