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Labor supply as a discrete choice among latent jobs

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  • John K. Dagsvik
  • Zhiyang Jia

    ()
    (Statistics Norway)

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    Abstract

    This paper discusses a modeling framework in which workers are assumed to choose their preferred job from latent worker-specific choice sets. This point of departure yields a framework that formalizes the widely used ad hoc approaches (fixed cost of working and dummies at peak hours) in the literature of discrete labor supply models. We discuss the conditions under which the preferences and job opportunity restrictions can be separated using conventional data on hours and wages only. Subsequently, we show that the framework is consistent with stochastic choice sets and a relaxation of the IIA assumption. An empirical model version for married/cohabiting couples is estimated using Norwegian micro data. Based on the empirical model, we discuss further important empirical issues, such as functional form, prediction performance and simulation of counterfactual policy reforms.

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    Bibliographic Info

    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 709.

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    Date of creation: Oct 2012
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    Handle: RePEc:ssb:dispap:709

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

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    1. John C. Ham & Kevin T. Reilly, 2002. "Testing Intertemporal Substitution, Implicit Contracts, and Hours Restriction Models of the Labor Market Using Micro Data," American Economic Review, American Economic Association, vol. 92(4), pages 905-927, September.
    2. John Creedy & Guyonne Kalb & Rosanna Scutella, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Melbourne Institute Working Paper Series wp2003n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    3. 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.
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    6. 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.
    7. Bloemen, H.G. & Kapteyn, A., 1993. "The Estimation of Utility Consistent Labor Supply Models by Means of Simulated Scores," Papers, Tilburg - Center for Economic Research 9367, Tilburg - Center for Economic Research.
    8. Steinar Str�m & John K. Dagsvik, 2006. "Sectoral labour supply, choice restrictions and functional form," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(6), pages 803-826.
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    13. Farzin, Y.H., 2009. "The effect of non-pecuniary motivations on labor supply," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(4), pages 1236-1259, November.
    14. Soest, A.H.O. van & Das, J.W.M. & Gong, X., 2001. "A Structural Labour Supply Model with Flexible Preferences," Open Access publications from Tilburg University urn:nbn:nl:ui:12-119390, Tilburg University.
    15. Stewart, Mark B & Swaffield, Joanna K, 1997. "Constraints on the Desired Hours of Work of British Men," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(441), pages 520-35, March.
    16. Barzel, Yoram, 1973. "The Determination of Daily Hours and Wages," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 87(2), pages 220-38, May.
    17. Tom Kornstad & Thor Thoresen, 2007. "A discrete choice model for labor supply and childcare," Journal of Population Economics, Springer, vol. 20(4), pages 781-803, October.
    18. Wolf, Elke, 2002. "Lower wage rates for fewer hours? A simultaneous wage-hours model for Germany," Labour Economics, Elsevier, vol. 9(5), pages 643-663, November.
    19. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
    20. Dagsvik, John K, 1994. "Discrete and Continuous Choice, Max-Stable Processes, and Independence from Irrelevant Attributes," Econometrica, Econometric Society, Econometric Society, vol. 62(5), pages 1179-1205, September.
    21. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
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    Cited by:
    1. Thor O. Thoresen & Trine E. Vattø, 2013. "Validation of structural labor supply model by the elasticity of taxable income," Discussion Papers, Research Department of Statistics Norway 738, Research Department of Statistics Norway.

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