Impact of interest rates and private wealth on labor supply: a study on G7 countries
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Date
2025
Authors
Razzaque, Qudrat E.
University of Lethbridge. Faculty of Arts and Science
Journal Title
Journal ISSN
Volume Title
Publisher
Lethbridge, Alta. : University of Lethbridge, Dept. of Economics
Abstract
This study examines the impact of interest rates and private wealth on labor supply across the G7 countries using data from 1971 to 2020. It uses a panel data analysis to explore how the changes of these variables influence labor supply, with a particular focus on substitution effect¬ — where labor supply increases as the interest rates rise — and income effects — where wealth accumulation reduces the labor supply. The study uses a Representative Agent New Keynesian (RANK) model to frame the theoretical discourse on the labor supply decisions. In the empirical analysis we considered the possibility of structural break and implemented diagnostic checks for it. The findings postulate insightful results, such as the dominance of the substitution effect in the case of interest rates, and the dominance of income effect when the interest rate was persistently high. Although, there is a statistically significant impact of these variables on the labor supply, the magnitude of these impacts remains modest
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Keywords
Interest rates , Private wealth , Labor supply , G7 countries