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Employment and pay

Labour supply and earned income underpin the standard of living of individuals and their families. The choices to enter work and how much to work cannot be fully understood in a static framework by looking at each period of life on its own. Instead, they are closely linked to early education choices and to further investments in skills during the working career. Over the course of life, the interactions between labour supply and these investments determine earnings, their progression and, ultimately, economic wellbeing.

Seminal work at the IFS has set the research agenda on labour supply, skills and wages, and their interplay with the tax and benefit system. This included groundbreaking work on modelling labour supply, measuring labour supply responses to changes in take-home pay, explaining retirement choices, characterising the distribution of wages and understanding wage progression. Much of this research was supported by TaxBen, the in-house detailed tax microsimulator that we have built and maintained since the early 1990s. TaxBen also supports our policy commentary on employment and pay related issues.

Our current research builds on the methods and insights of these early contributions. It aims to better explain the dynamic aspects of labour supply and earnings over the course of life, by relating them to the formation of skills, the family and the process of family formation, the uncertainties faced by individuals and their families, the persistent economic inequalities and the incentives created by the tax and benefit system. Our research is also seeking to analyse the determinants of recent trends in labour market productivity, which is key to understand the drop in productivity after the Great Recession after a long period of stable growth.

Selected highlights

Journal article | Econometrica
estimating_labour_supply_responses_using_tax_reforms
The 1980s tax reforms and the changing dispersion of wages offer one the best opportunities yet to estimate labour supply effects.
Video clip
This video and accompanying presentation slides draw on material given in a presentation to economics students, as part of a public economics series of lectures in December 2013 at the Institute for Fiscal Studies.
Journal article | Journal of Political Economy
We extend the collective model of household behavior to allow for the existence of public consumption.
Book chapter
This chapter in a Handbook of Labor Economics (North Holland) surveys existing approaches to modeling labor supply and identifies important gaps in the literature that could be addressed in future research.
Briefing note
the_uk_labour_market_where_do_we_stand_now
IFS Election 2017 analysis is being produced with funding from the Nuffield Foundation as part of its work to ensure public debate in the run-up to the General Election is informed by independent and rigorous evidence.
Journal article | Econometrica
female_labor_supply_human_capital_and_welfare_reform
We estimate a dynamic model of employment, human capital accumulation—including education, and savings for women in the United Kingdom, exploiting tax and benefit reforms, and use it to analyze the effects of welfare policy.

Contacts

Contact IFS on 020 7291 4800 or mailbox@ifs.org.uk

Monica Costa Dias
Deputy Research Director
Robert Joyce
Deputy Director
Barra Roantree
Research Associate