Essays on Labor and Climate Economics

This dissertation consists of three chapters examining the effects of public policy on the labor supply decisions of households, particularly women, and the heterogeneous impact of changes in temperature across countries. Motivated by structural changes in female labor force participation in the past decades, cross-country differences in participation rates today, and political debates about constraints and disincentives for women to supply labor, the first two chapters study the effects of the policy tools of income taxation and public childcare on female labor supply. The third chapter is motivated by the notion that climate change is a global rather than a country-specific phenomenon and focuses on differential exposure of exchange rates to common global temperature risks. The first chapter analyzes the effects of abolishing joint taxation of married couples, an element that, in a progressive tax system, constitutes a disincentive for many married women and is at the center of policy debates. I contribute to the debate by highlighting that the effects of abolishing joint taxation on labor force participation and GDP are twofold. Raising female labor inputs increases output by adding more workers to the labor force. Second, the reform also changes the labor force’s composition, allowing for added effects from gender diversity. The chapter presents empirical evidence for such a gender diversity channel and develops a general equilibrium model with heterogeneous agents to characterize its quantitative importance. Calibrating the model to Germany, I find that the tax reform has a substantial effect on labor force participation and that the complementarities between men and women substantially amplify the positive effects of the tax reform. The second chapter focuses on public childcare and cross-country differences in female labor force participation. The uninterrupted rise in U.S. female labor force participation throughout the 1970s and 1980s stalled in the 1990s and has fallen since. Women in other western countries, especially in Scandinavia, where childcare is heavily subsidized, are more likely to participate in the labor market. Even though working mothers in the U.S. face substantially higher childcare costs, they receive less public support. I build a structural model, which allows me to examine whether increasing U.S. public spending on childcare to Scandinavian levels can promote growth in the women’s labor supply. While financing larger public spending with higher payroll taxes has distortionary effects, raising child-related transfers reduces mothers’ disincentives to work. The policy increases long-run labor force participation among married women, and households with young children benefit substantially from the reform. However, overall welfare falls as many households lose marginally. The third chapter, co-authored with Sinyoung O. Lee, Nelson C. Mark, Jonathan Rawls, and Zhiyi Wei, studies how U.S. dollar real exchange rates of multiple countries respond to global temperature shocks. We find heterogeneous impulse responses and study the determinants of response heterogeneity by regressing local projection response coefficients on country characteristics. If real currency strength represents relative strength in that country’s current and future economic fundamentals, a real appreciation caused by a global temperature shock should be reflected in foreign exchange market participants’ beliefs that the country in question is less adversely affected by the shock than the rest-of-world. We find that, at the 48-month horizon, a country’s currency is more likely to depreciate if the country has grown faster and is more dependent on agriculture and tourism.