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THE EFFECTS OF THE 1.03 MILLION YEN CEILING IN A DYNAMIC LABOR SUPPLY MODEL
Author(s) -
ABE YUKIKO
Publication year - 2009
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.2008.00115.x
Subject(s) - ceiling (cloud) , economics , earnings , spillover effect , welfare , labour economics , order (exchange) , microeconomics , market economy , physics , accounting , finance , meteorology
In this paper I examine the effects of a means‐tested transfer system in Japan (“1.03 million yen ceiling”) in a dynamic labor supply model with endogenous retirement. In Japan, married women have reason to limit their annual earnings to no more than 1.03 million yen in order to receive a number of benefits available to low‐income wives, and in fact often choose to do so. In a dynamic model, the optimal labor supply schedule follows a pattern that is not seen in a static framework, which I call the “spillover effect.” The paper also examines the properties of dynamic welfare cost of this ceiling. ( JEL J22, H24, H55)