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Modeling Wages and Hours of Work


  • Elina Pylkkänen

    () (Ministry of Finance, Sweden)


This paper consists of two parts. In the first part we introduce a wage model and in the second part we construct a household labor supply model. Both models are intended to be a part of the dynamic micro simulation model, Sesim, developed by the Ministry of Finance, Sweden. Hourly wage rates are explained by a random coefficient panel data model. To avoid the sample-selection problem a model explaining the probability of observing a wage rate is suggested. Labor supply of single- and two-adult households are modeled as a discrete choice problem. The household labor supply model is estimated assuming that preference for leisure and consumption can be described by a direct translog utility function. When constructing the households’ budget sets the complete taxation scheme and the main social benefit programs are taken into account. The wage elasticities are estimated to about 0.3 for both females and males, irrespective of the household type. However, the responses to simulated tax reforms differ between sexes and household types.

Suggested Citation

  • Elina Pylkkänen, 2001. "Modeling Wages and Hours of Work," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 4(2), December.
  • Handle: RePEc:bej:issued:v:4:y:2001:i:2:elina

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    More about this item


    Hourly wage rate; Random effects; Panel data; Labor supply; Discrete choice; Policy simulation;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue


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