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Labor Supply as a Choice among Latent Job Opportunities. A Practical Empirical Approach

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  • John K. Dagsvik
  • Zhiyang Jia

    ()
    (Statistics Norway)

Abstract

In this paper, we discuss aspects of a particular framework for modeling labor supply and the application of this approach in practical policy simulation experiments. This modeling framework differs from the standard models of labor supply in that the notion of job choice is fundamental. Specifically, the worker is assumed to have preferences over a latent worker-specific choice set of jobs from which he or she chooses his or her preferred job. A job is characterized with fixed (job-specific) working hours and other non-pecuniary attributes. As a result, observed hours of work are interpreted as the job-specific (fixed) hours of work that is associated with the chosen job. We then show that our framework is practical with respect to applications in empirical analysis and simulation experiments, and is able to produce satisfactory out-of-sample predictions by estimating the model on Norwegian microdata from 1997 and predicting the corresponding microdata from 2003.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 481.

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Date of creation: Oct 2006
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Handle: RePEc:ssb:dispap:481

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Keywords: Labor supply; non-pecuniary job attributes; non-convex budget sets; latent choice sets; random utility models.;

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References

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  1. Dagsvik, John K, 1994. "Discrete and Continuous Choice, Max-Stable Processes, and Independence from Irrelevant Attributes," Econometrica, Econometric Society, vol. 62(5), pages 1179-1205, September.
  2. John Creedy & Guyonne Kalb, 2005. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 697-734, December.
  3. Kapteyn, Arie & Kooreman, Peter & van Soest, Arthur, 1990. "Quantity Rationing and Concavity in a Flexible Household Labor Supply Model," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 55-62, February.
  4. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  5. Ted Bergstrom, 1994. "A Survey of Theories of the Family," Labor and Demography 9401001, EconWPA, revised 10 Oct 1994.
  6. William T. Dickens & Shelly J. Lundberg, 1985. "Hours Restrictions and Labor Supply," NBER Working Papers 1638, National Bureau of Economic Research, Inc.
  7. Dagsvik, John K, 2000. "Aggregation in Matching Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 27-57, February.
  8. Steinar Str�m & John K. Dagsvik, 2006. "Sectoral labour supply, choice restrictions and functional form," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(6), pages 803-826.
  9. Jørgen Aasness & Torstein Bye & Hans Terje Mysen, 1995. "Welfare Effects of Emission Taxes in Norway," Discussion Papers 148, Research Department of Statistics Norway.
  10. Dagsvik, John K. & Strom, Steinar & Jia, Zhiyang, 2006. "Utility of income as a random function: Behavioral characterization and empirical evidence," Mathematical Social Sciences, Elsevier, vol. 51(1), pages 23-57, January.
  11. Chiappori, P.A., 1989. "Collective Labour Supply and Welfare," DELTA Working Papers 89-07, DELTA (Ecole normale supérieure).
  12. John K. Dagsvik & Marilena Locatelli & Steinar Strøm, 2006. "Simulating labor supply behaviour when workers have preferences over job opportunities and face non-linear budget constraints," CHILD Working Papers wp01_06, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  13. Zhiyang Jia, 2005. "Labor Supply of Retiring Couples and Heterogeneity in Household Decision-Making Structure," Review of Economics of the Household, Springer, vol. 3(2), pages 215-233, 06.
  14. McFadden, Daniel L., 1984. "Econometric analysis of qualitative response models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 24, pages 1395-1457 Elsevier.
  15. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
  16. Jerry A. Hausman & Paul Ruud, 1984. "Family Labor Supply With Taxes," NBER Working Papers 1271, National Bureau of Economic Research, Inc.
  17. Ilmakunnas, Seija & Pudney, Stephen, 1990. "A model of female labour supply in the presence of hours restrictions," Journal of Public Economics, Elsevier, vol. 41(2), pages 183-210, March.
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Citations

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Cited by:
  1. Iskhakov, Fedor, 2008. "Dynamic Programming Model of Health and Retirement," Memorandum 03/2008, Oslo University, Department of Economics.
  2. John Dagsvik & Zhiyang Jia & Kristian Orsini & Guy Camp, 2011. "Subsidies on low-skilled workers’ social security contributions: the case of Belgium," Empirical Economics, Springer, vol. 40(3), pages 779-806, May.
  3. John K. Dagsvik & Zhiyang Jia, 2008. "An Alternative Approach to Labor Supply Modeling. Emphasizing Job-type as Choice Variable," Discussion Papers 550, Research Department of Statistics Norway.
  4. Thor O. Thoresen & Jørgen Aasness & Zhiyang Jia, 2008. "More realistic estimates of revenue changes from tax cuts," Discussion Papers 545, Research Department of Statistics Norway.

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