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

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John K. Dagsvik and Zhiyang Jia () (Statistics Norway)

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

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Find related papers by JEL classification:
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Chiappori, Pierre-Andre, 1992. "Collective Labor Supply and Welfare," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 437-67, June. [Downloadable!] (restricted)
    Other versions:
  2. 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. [Downloadable!] (restricted)
    Other versions:
  3. 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. [Downloadable!] (restricted)
  4. John K. Dagsvik, 1996. "Aggregation in Matching Markets," Discussion Papers 173, Research Department of Statistics Norway.
    Other versions:
  5. 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. [Downloadable!] (restricted)
    Other versions:
  6. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. Ted Bergstrom, 1995. "A Survey of Theories of the Family," Papers _027, University of Michigan, Department of Economics. [Downloadable!]
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  9. 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. [Downloadable!] (restricted)
  10. 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. [Downloadable!]
  11. 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. [Downloadable!] (restricted)
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  12. Hausman, Jerry & Ruud, Paul, 1984. "Family Labor Supply with Taxes," American Economic Review, American Economic Association, vol. 74(2), pages 242-48, May. [Downloadable!] (restricted)
  13. John K. Dagsvik & Anders Karlström, 2005. "Compensating Variation and Hicksian Choice Probabilities in Random Utility Models that are Nonlinear in Income," Review of Economic Studies, Blackwell Publishing, vol. 72(1), pages 57-76, 01. [Downloadable!] (restricted)
  14. John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Treasury Working Paper Series 03/20, New Zealand Treasury. [Downloadable!]
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  15. Jerry A. Hausman & Paul Ruud, 1984. "Family Labor Supply With Taxes," NBER Working Papers 1271, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Aasness, Jorgen & Bye, Torstein & Mysen, Hans Terje, 1996. "Welfare effects of emission taxes in Norway," Energy Economics, Elsevier, vol. 18(4), pages 335-346, October. [Downloadable!] (restricted)
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  17. Dickens, William T & Lundberg, Shelly J, 1993. "Hours Restrictions and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 169-92, February. [Downloadable!] (restricted)
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  18. 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. [Downloadable!] (restricted)
  19. John K. Dagsvik and Steinar Strøm, 2004. "Sectoral Labor Supply, Choice Restrictions and Functional Form," Discussion Papers 388, Research Department of Statistics Norway. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Iskhakov, Fedor, 2008. "Dynamic Programming Model of Health and Retirement," Memorandum 03/2008, Oslo University, Department of Economics. [Downloadable!]
  2. John K. Dagsvik and Zhiyang Jia, 2008. "An Alternative Approach to Labor Supply Modeling. Emphasizing Job-type as Choice Variable," Discussion Papers 550, Research Department of Statistics Norway. [Downloadable!]
  3. Thor O. Thoresen, Jørgen Aasness and Zhiyang Jia, 2008. "More realistic estimates of revenue changes from tax cuts," Discussion Papers 545, Research Department of Statistics Norway. [Downloadable!]
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