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A behavioral microsimulation model with discrete labour supply for Italian couples

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  • Daniele Pacifico

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Abstract

The aim of this paper is to introduce labour supply behaviour in an arithmetic microsimulation model so as to take into account changes in labour supply when a new policy is evaluated. I explore the performance of a labour supply estimation method based on a discrete choice set. The idea behind this approach is to work directly with preferences instead of labour supply functions. The main advantage of the discrete approach is the possibility of dealing easily with non-convex budget sets and joint labour supply. This let the discrete approach relatively suitable for policy evaluation purposes. I use the papers from Blundell, Dancan, McCrae and Meghir (1999) and Brewer, Duncan Shepard and Suarez (2006) as main references for the structural microeconometric model. Several innovative elements are taken into account with respect previous Italian studies. In particular, I allow for errors in the predicted wage for non-workers, unobserved heterogeneity in preferences, unobserved monetary fixed costs of working and child-care demand. The model is fully parametric and the Simulated Maximum Likelihood approach is used to approximate multidimensional integrals. An overview of the STATA routine for the maximum likelihood estimation is also presented. The elasticities of labour supply for married men and women are computed and discussed.

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Bibliographic Info

Paper provided by Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica in its series Center for the Analysis of Public Policies (CAPP) with number 0065.

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Date of creation: Mar 2009
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Handle: RePEc:mod:cappmo:0065

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Keywords: Microsimulation; Household labour supply; discrete choice;

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  1. José M. Labeaga & Xisco Oliver & Amadéo Spadaro, 2005. "Discrete choice models of labour suppluy, behavioural microsimulation and the Spanish tax reform," PSE Working Papers halshs-00590836, HAL.
  2. Del Boca, Daniela & Vuri, Daniela, 2005. "Labor Supply and Child Care Costs: The Effect of Rationing," IZA Discussion Papers 1779, Institute for the Study of Labor (IZA).
  3. Andrea Brandolini, 1999. "The Distribution of Personal Income in Post-War Italy: Source Description, Data Quality, and the Time Pattern of Income Inequality," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(2), pages 183-239, September.
  4. Lorenzo Cappellari & Stephen P. Jenkins, 2006. "Calculation of Multivariate Normal Probabilities by Simulation, with Applications to Maximum Simulated Likelihood Estimation," Discussion Papers of DIW Berlin 584, DIW Berlin, German Institute for Economic Research.
  5. Aaberge, Rolf & Colombino, Ugo & Strom, Steinar, 1999. "Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions, with Taxes and Quantity Constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(4), pages 403-22, July-Aug..
  6. Peter Haan, 2004. "Discrete Choice Labor Supply: Conditional Logit vs. Random Coefficient Models," Discussion Papers of DIW Berlin 394, DIW Berlin, German Institute for Economic Research.
  7. Massimo Baldini & Daniele Pacifico, 2006. "Gli effetti distributivi dei trasferimenti in kind: il caso dei servizi educativi e sanitari," Center for the Analysis of Public Policies (CAPP) 0018, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
  8. M. Keane & R. Mofitt, 1995. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," Working Papers 95-4, Brown University, Department of Economics.
  9. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555.
  10. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  11. Brewer, Mike & Duncan, Alan & Shephard, Andrew & Suarez, Maria Jose, 2006. "Did working families' tax credit work? The impact of in-work support on labour supply in Great Britain," Labour Economics, Elsevier, vol. 13(6), pages 699-720, December.
  12. Anna Laura Mancini, 2008. "Labor Supply Responses of Italian Women to Minimum Income Policies," Working Papers 94, ECINEQ, Society for the Study of Economic Inequality.
  13. John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Treasury Working Paper Series 03/20, New Zealand Treasury.
  14. Robert Breunig & Deborah A. Cobb-Clark & Xiaodong Gong, 2008. "Improving the Modelling of Couples' Labour Supply," The Economic Record, The Economic Society of Australia, vol. 84(267), pages 466-485, December.
  15. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "Evaluating In-Work Benefit Reform: The Working Families Tax Credit in the U.K," JCPR Working Papers 160, Northwestern University/University of Chicago Joint Center for Poverty Research.
  16. Creedy, John & Duncan, Alan, 2002. " Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 1-39, February.
  17. William W. Gould & Jeffrey Pitblado & Brian Poi, 2010. "Maximum Likelihood Estimation with Stata," Stata Press books, StataCorp LP, edition 4, number ml4, March.
  18. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
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Cited by:
  1. Alan S Duncan & Mark N Harris & Anthony Harris & Eugenio Zucchelli, 2013. "The Influence of Psychological Well-being, Ill Health and Health Shocks on Single Parents' Labour Supply," Bankwest Curtin Economics Centre Working Paper series WP1307, Bankwest Curtin Economics Centre (BCEC), Curtin Business School.

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