We investigate how debt forgiveness and automatic wage garnishment following default impact labor supply. Analyzing total population register data from 2004-2019, we initially explore the effect of reducing debt enforcement duration from 20 to 15 years. Our treatment group comprises individuals with forgiven debts (enforcement duration 15+ years), while the control group consists of those with enforcement duration over 5 years. In a difference-in-differences approach, we find an 8% increase in labor earnings relative to the pre-reform control mean. Additionally, we analyze wage garnishment, where 33 to 50% of income exceeding a threshold is automatically garnished. Utilizing discontinuities in the budget set, we identify a labor supply elasticity varying between 0.006-0.08. Lastly, we develop a theoretical model of debt enforcement, estimating labor supply and defaulting elasticities, and demonstrate their relative importance through simulations.

This study explores the optimal nonlinear taxation of labor and entrepreneurial income, building upon the recent research by Scheuer (2014). It introduces a new element into the analysis: equilibrium unemployment. Our findings suggest that even when employment is an endogenous factor, it is possible for the government to redistribute income via taxation without compromising production efficiency. This can be achieved by separately taxing entrepreneurial and labor income. Furthermore, our results indicate that the inclusion of involuntary unemployment in the model provides a rationale for taxing entrepreneurial income at lower marginal rates, and labor income at higher marginal rates, than would otherwise be the case.

This paper studies how progressive taxation affects sorting patterns in a directed search model where both workers and firms differ in their productivity. By reducing the benefits of higher wages, progressive taxes lead workers to match with less productive firms. Furthermore, progressive taxes amplify the force of search frictions against positive sorting. As a result, stronger complementarities between firm and worker productivity are required to obtain positive sorting. Turning to optimal taxes, I show that accounting for firm heterogeneity raises the optimal degree of tax progressivity if productivity differences between firms exacerbate inequality between workers.

All countries except the US are mandating paid time off. In this paper, I provide a novel welfare analysis of any working time regulations. Labor is unbundled into jobs and hours worked while workers have heterogeneous preferences for leisure. First, I show that the wage effects of a working time reduction critically depend on the extent of imperfect competition in the labor market: the policy increases wage rates in perfect competition but decreases monopsonistic wage rates. Second, sorting in competitive search equilibrium reveals that high-productivity firms offer contracts with higher wage rates, shorter hours, and a higher job quality but lower job-finding probability. Third, it is shown that the key sufficient statistics for welfare evaluation are the elasticity of profits and employment to the working time reduction.