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Theoretical and practical arguments for modeling labor supply as a choice among latent jobs

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  • John K. Dagsvik
  • Zhiyang Jia
  • Tom Kornstad
  • Thor O. Thoresen

    ()
    (Statistics Norway)

Abstract

Models of labor supply derived from stochastic utility representations and discretized sets of feasible hours of work have gained popularity because they are more practical than standard approaches based on marginal calculus. In this paper we argue that practicality is not the only feature that can be addressed by means of stochastic choice theory. This theory also offers a powerful framework for developing a more realistic model for labor supply choices, founded on individuals having preferences over jobs and facing restrictions on the choice of jobs and hours of work. We discuss and clarify how this modeling framework deviates from both the conventional discrete approach (van Soest, 1995), as well as the standard textbook approach based on marginal calculus (Hausman, 1985). We furthermore discuss how the model based on job choice offers the possibility of conducting a richer set of simulations of alternative policies.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 692.

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Date of creation: Jun 2012
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Handle: RePEc:ssb:dispap:692

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Keywords: Labor supply; Random utility models; Tax reforms;

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Cited by:
  1. Thor O. Thoresen & Zhiyang Jia & Peter J. Lambert, 2013. "Distributional benchmarking in tax policy evaluations," Discussion Papers 765, Research Department of Statistics Norway.

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