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Abstract

The first three chapters of this thesis contribute to our understanding of labor supply decisions. The first chapter investigates whether workers have preferences with income effects outweighing substitution effects. To test this hypothesis, I propose a novel approach that exploits exogenous income variation generated from trade openness to examine the response of aggregate labor supply. My findings show that trade indirectly generates leisure gains through income effects. The second chapter disaggregates these findings. My coauthor and I explore heterogeneous labor supply responses to income across workers of different age, education levels and gender. Findings show that young and elder workers capture most of the leisure gains. The third chapter studies how taxation discourages labor supply in EU New Member States. Employing a calibrated model and panel regressions, my coauthor and I assess the impact magnitude of labor and consumption taxes on different margins of hours worked. Finally, the fourth chapter of this dissertation contributes to the literature on the determinants of income distribution. I assess the role played by capital deepening and market power in explaining the decline of the labor share in the US manufacturing sectors. By estimating sectoral production functions along the time series, I find that most sectors operate with technology that is incompatible with the capital deepening hypothesis. On the other hand, the market power hypothesis matches the timing and magnitude of the labor share decline.

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