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Estimation of Labour Supply in New Zealand

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  • Joseph Mercante
  • Penny Mok

    ()
    (The Treasury)

Abstract

In this paper we estimate labour supply using a discrete choice approach for single men, single women and single parents and a joint labour supply equation for couples in New Zealand. The data are based on pooled cross-sectional data from the Household Economic Survey over 2006/07 to 2010/11. We allow singles to choose from eleven discrete hours whilst couples choose from 66 combined working hour choices. Net incomes at all possible discrete working-hours are calculated using Treasury’s TAXWELL microsimulation model. For non-workers, net incomes are estimated based on an imputed wage. In order to fit the model to the observed working hour distribution we include a fixed cost of working parameter and we explicitly take account of observed and unobserved heterogeneity in the data. We find that the coefficient estimates of the labour supply equations mostly accord with expectations and are reasonably comparable with previously estimated equations for New Zealand. Using the equations we find that the labour supply predictions fit the observed data reasonably well. However, despite the inclusion of a fixed cost of working parameter, the peak working hours of around 40 hours per week in the observed data is under-predicted by the models, while part-time hours of work remain over-predicted. We compute labour supply elasticities from the estimated parameters which show that single parents and single women are the most responsive, whilst partnered men and single men are the least responsive.

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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 14/08.

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Length: 52
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:nzt:nztwps:14/08

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Related research

Keywords: labour supply; discrete choice; random utility; multinomial logit;

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  1. John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Melbourne Institute Working Paper Series wp2003n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  2. William T. Dickens & Shelly J. Lundberg, 1985. "Hours Restrictions and Labor Supply," NBER Working Papers 1638, National Bureau of Economic Research, Inc.
  3. M. Keane & R. Moffitt, . "A structural model of multiple welfare program participation and labor supply," Institute for Research on Poverty Discussion Papers 1080-96, University of Wisconsin Institute for Research on Poverty.
  4. Hausman, Jerry A., 1979. "The econometrics of labor supply on convex budget sets," Economics Letters, Elsevier, vol. 3(2), pages 171-174.
  5. 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.
  6. Guyonne Kalb & Rosanna Scutella, 2003. "New Zealand Labour Supply from 1991-2001: An Analysis Based on a Discrete Choice Structural Utility Model," Treasury Working Paper Series 03/23, New Zealand Treasury.
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