The Effects of Foreign Transfers with a Flexible Labor Supply

Serpil BOUZA; Stephen J. TURNOVSKY

Article Details

The Effects of Foreign Transfers with a Flexible Labor Supply

Authors:

Serpil BOUZA | Stephen J. TURNOVSKY

Publisher:

Türkiye Ekonomi Kurumu Vakfı

Main Topics:

Economics and Finance

Journal:

Ekonomi-tek 2012 Vol.1 Issue 1, pp.1-39

Document Type:

Article

Publication Date:

1/2012

Document Language:

English

Document ID (Org No.):

2000406302

eISSN:

2791-7991

pISSN:

2146-6173

Abstract:

 

We show that the importance of flexible labor supply in determining the impact of foreign transfers depends upon whether the transfers are untied or tied to productivity enhancement. This is because the transfer has both a wealth effect and a relative price effect, the relative importance of which depends upon its allocation. For an untied transfer, the relative price effect is weak, the wealth effect on leisure dominates, and the endogeneity of the labor supply is important. For a tied transfer, the increase in productivity raises the wage rate, thereby inducing an increase in aggregate labor supply and offsetting the increase in leisure due to the wealth effect. The overall response in leisure is small and is dominated by the relative price effect. In this case, given this small response, whether the aggregate labor is supplied elastically or is constrained to be fixed turns out to make little difference.

 

We show that the importance of flexible labor supply in determining the impact of foreign transfers depends upon whether the transfers are untied or tied to productivity enhancement. This is because the transfer has both a wealth effect and a relative price effect, the relative importance of which depends upon its allocation. For an untied transfer, the relative price effect is weak, the wealth effect on leisure dominates, and the endogeneity of the labor supply is important. For a tied transfer, the increase in productivity raises the wage rate, thereby inducing an increase in aggregate labor supply and offsetting the increase in leisure due to the wealth effect. The overall response in leisure is small and is dominated by the relative price effect. In this case, given this small response, whether the aggregate labor is supplied elastically or is constrained to be fixed turns out to make little difference.

Article Details

The Effects of Foreign Transfers with a Flexible Labor Supply

Authors: Serpil BOUZA | Stephen J. TURNOVSKY

Publisher: Türkiye Ekonomi Kurumu Vakfı

Main Topics: Economics and Finance

Journal: Ekonomi-tek 2012 Vol.1 Issue 1, pp.1-39

Document Type: Article

Publication Date: 1/2012

Document Language: English

Document ID (Org No.): 2000406302

eISSN: 2791-7991

pISSN: 2146-6173

Issues

Authors:

Serpil BOUZA | Stephen J. TURNOVSKY

Publisher:

Türkiye Ekonomi Kurumu Vakfı

Main Topics:

Economics and Finance

Journal:

Ekonomi-tek 2012 Vol.1 Issue 1, pp.1-39

Document Type:

Article

Publication Date:

1/2012

Document Language:

English

Document ID (Org No.):

2000406302

eISSN:

2791-7991

pISSN:

2146-6173