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Simulating labor supply behavior when workers have preferences for job opportunities and face nonlinear budget constraints

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  • John K. Dagsvik
  • Marilena Locatelli
  • Steinar Strøm

    () (Statistics Norway)

Abstract

This paper analyzes the properties of a particular sectoral labor supply model developed in Dagsvik and Strøm (2006). The model is estimated on labor supply data for married women in Norway 1994. In this model, workers have preferences over sectors and latent job attributes. Moreover, the model allows for a representation of the individual choice sets of feasible jobs in the economy. The properties of the model are explored by calculating elasticities and through simulations of the effects of particular tax reforms. The overall wage elasticities are rather small, but these small elasticities shadow for much stronger sectoral responses. An overall wage increase and, of course, a wage increase in the private sector only, gives women an incentive to shift their labor supply from the public to the private sector. Marginal tax rates were cut considerably in the 1992 tax reform. We find that the impact on overall labor supply is rather modest, but again these modest changes shadow for stronger sectoral changes. The tax reform stimulated the women to shift their labor from the public to the private sector and to work longer hours. A calculation of mean compensated variation shows that the richest households benefited far more from the 1992 tax reform than did the poorest households.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 488.

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Date of creation: Oct 2006
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Handle: RePEc:ssb:dispap:488

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Keywords: Labor supply; married females; structural model; sectoral choice; wage elasticities; evaluation of tax reforms;

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References

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  1. G. Burtless & J. A. Hausman, 1977. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiment," Working papers 211, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
  3. 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..
  4. 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.
  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.
  6. Macurdy, T. & Green, D. & Paarsch, H., 1990. "Assessing Empirical Approaches For Analyzing Taxes And Labor Supply," Working Papers e-90-11, Hoover Institution, Stanford University.
  7. Macurdy, T. & Green, D. & Paarsch, H., 1990. "Assessing Empirical Approaches For Analyzing Taxes And Labor Supply," Working Papers e-90-11, Hoover Institution, Stanford University.
  8. Tim Callan & Arthur Van Soest, 1996. "Family Labour Supply and Taxes in Ireland," Papers WP078, Economic and Social Research Institute (ESRI).
  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.
  10. repec:bla:restud:v:72:y:2005:i:1:p:57-76 is not listed on IDEAS
  11. John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Treasury Working Paper Series 03/20, New Zealand Treasury.
  12. Roed, Knut & Strom, Steinar, 2002. " Progressive Taxes and the Labour Market: Is the Trade-Off between Equality and Efficiency Inevitable?," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 77-110, February.
  13. Ashenfelter, Orley & Heckman, James J, 1974. "The Estimation of Income and Substitution Effects in a Model of Family Labor Supply," Econometrica, Econometric Society, vol. 42(1), pages 73-85, January.
  14. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-94, July.
  15. Bruce D. Meyer & Bradley T. Heim, 2004. "Structural Labor Supply Models when Budget Constraints are Nonlinear," Econometric Society 2004 North American Winter Meetings 567, Econometric Society.
  16. Joseph G. Altonji & Christina H. Paxson, 1987. "Labor Supply Preferences, Hours Constraints, and Hours-Wage Tradeoffs," NBER Working Papers 2121, National Bureau of Economic Research, Inc.
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Cited by:
  1. Di Tommaso, M. L. & Strøm, Steinar & Sæther, Erik Magnus, 2008. "Nurses Wanted: Is the Job Too Hars or is the Wage Too Low," Memorandum 08/2008, Oslo University, Department of Economics.

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