Liquidity constraints and labor supply

by Mariacristina Rossi and Serena Trucchi; CeRP WP N. 127/12



In this paper we show how liquidity constraints shape Italian households’ decisions with regard to supplying their labor. One way to neutralize binding liquidity  constraints is by resorting to supplying additional labor, instead of reducing consumption patterns. We estimate whether this channel is at work by using the Survey of Households Income and Wealth (SHIW) sample. In our analysis we are also able to detect whether actual labor supply differs from the desired one. Our results show that liquidity constraints foster female participation in the labor force and increase the intensity in the supply of men’s labor.

Published: October 2012

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