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Aggregating Labour Supply and Feedback Effects in Microsimulation

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  • John Creedy

    ()
    (Department of Economics, The University of Melbourne)

  • Alan Duncan

    (School of Economics, University of Nottingham, Institute for Fiscal Studies and Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This paper extends behavioural microsimulation modelling so that third round effects of a policy change can be simulated. The Þrst round effects relate to fixed hours of work, while second round effects allow for changes in desired hours of work at unchanged wages. These allow for endogenous changes to the distribution of wage rates resulting from the labour supply responses to tax changes. This is achieved using the concept of an aggregate supply response schedule., which identiÞes the extent to which average labour supply responds to a proportional change in wage rates. The third round effect is obtained after re-running a microsimulation model with a suitable modification to individuals. wage rates. The method is illustrated using the MITTS behavioural microsimulation model.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2001n15.

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Length: 27 pages
Date of creation: Nov 2001
Date of revision:
Handle: RePEc:iae:iaewps:wp2001n15

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Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
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  1. Orley Ashenfelter, 1977. "Unemployment as Disequilibrium in a Model of Aggregate Labor Supply," Working Papers 484, Princeton University, Department of Economics, Industrial Relations Section..
  2. Michael P. Keane & Robert Moffitt, 1995. "A structural model of multiple welfare program participation and labor supply," Working Papers 557, Federal Reserve Bank of Minneapolis.
  3. Andrew Dilnot & Alan Duncan, 1992. "Lone mothers, family credit and paid work," Fiscal Studies, Institute for Fiscal Studies, vol. 13(1), pages 1-21, February.
  4. Joseph Altonji, 1984. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Working Papers 562, Princeton University, Department of Economics, Industrial Relations Section..
  5. Muellbauer, John N J, 1981. "Linear Aggregation in Neoclassical Labour Supply," Review of Economic Studies, Wiley Blackwell, vol. 48(1), pages 21-36, January.
  6. Creedy, John & Duncan, Alan, 2002. " Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 1-39, February.
  7. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-54, Sept./Oct.
  8. Kennan, John, 1988. "An Econometric Analysis of Fluctuations in Aggregate Labor Supply and Demand," Econometrica, Econometric Society, vol. 56(2), pages 317-33, March.
  9. Alogoskoufis, George S, 1987. "On Intertemporal Substitution and Aggregate Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 938-60, October.
  10. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-21, May.
  11. Bergmann, Barbara R, 1990. "Micro-to-Macro Simulation: A Primer with a Labor Market Example," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 99-116, Winter.
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