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Measuring Welfare Changes In Labour Supply Models

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  • JOHN CREEDY
  • GUYONNE KALB

Abstract

This paper examines the computation of welfare measures for use with labour supply models. The standard method of computing compensating and equivalent variations does not allow sufficiently for the nonlinearity of the budget constraint in such models. An alternative method is suggested and applied to contexts in which individuals are allowed to vary their hours continuously and to contexts where only a limited number of discrete hours of work are available. Discrete hours models have in recent years been used in view of the substantial econometric advantages when estimating the parameters of direct utility functions. This type of model is particularly popular in behavioural microsimulation modelling where predicted labour supply responses are calculated for policy changes.

Suggested Citation

  • John Creedy & Guyonne Kalb, 2005. "Measuring Welfare Changes In Labour Supply Models," Manchester School, University of Manchester, vol. 73(6), pages 664-685, December.
    • Handle: RePEc:bla:manchs:v:73:y:2005:i:6:p:664-685
    DOI: 10.1111/j.1467-9957.2005.00471.x
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    1. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
    2. Callan, T. & van Soest, A.H.O., 1994. "Family labour supply and taxes in Ireland," Other publications TiSEM f58e0a56-60c1-4f81-b11b-b, Tilburg University, School of Economics and Management.
    3. Guyonne R. Kalb, 1999. "Labour Supply and Welfare Participation in Australian Two-Adult Households: Comparing 1986/87 with 1994/95," Centre of Policy Studies/IMPACT Centre Working Papers bp-34, Victoria University, Centre of Policy Studies/IMPACT Centre.
    4. Johansson,Per-Olov, 1987. "The Economic Theory and Measurement of Environmental Benefits," Cambridge Books, Cambridge University Press, number 9780521348102.
    5. Creedy, J. & Kalb, G., 2001. "Measuring Welfare Changes With Nonlinear Budget Constraints in Continuous and Discrete Hours Labour Supply Models," Department of Economics - Working Papers Series 799, The University of Melbourne.
    6. Guyonne R. Kalb, 2000. "Labour Supply and Welfare Participation in Australian Two-Adult Households: Accounting for Involuntary Unemployment and the 'Cost' of Part-time Work," Centre of Policy Studies/IMPACT Centre Working Papers bp-35, Victoria University, Centre of Policy Studies/IMPACT Centre.
    7. Blundell,R. W. & Preston,Ian & Walker,Ian (ed.), 1994. "The Measurement of Household Welfare," Cambridge Books, Cambridge University Press, number 9780521451956.
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    Cited by:

    1. John Creedy & Nicolas Hérault†, 2011. "Decomposing Inequality and Social Welfare Changes : The Use of Alternative Welfare Metrics," Department of Economics - Working Papers Series 1121, The University of Melbourne.
    2. Stefan Boeters, 2013. "Optimal Tax Progressivity in Unionised Labour Markets: Simulation Results for Germany," Computational Economics, Springer;Society for Computational Economics, vol. 41(4), pages 447-474, April.
    3. John Creedy & Penny Mok, 2018. "The marginal welfare cost of personal income taxation in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 52(3), pages 323-338, September.
    4. John Creedy & Penny Mok, 2018. "The marginal welfare cost of personal income taxation in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 52(3), pages 323-338, September.
    5. Creedy, John & Gemmell, Norman & Hérault, Nicolas & Mok, Penny, 2018. "Microsimulation Analysis of Optimal Income Tax Reforms. An Application to New Zealand," GLO Discussion Paper Series 213, Global Labor Organization (GLO).
    6. John Creedy, 2010. "Personal Income Tax Structure: Theory and Policy," Chapters, in: Iris Claus & Norman Gemmell & Michelle Harding & David White (ed.), Tax Reform in Open Economies, chapter 7, Edward Elgar Publishing.
    7. Eleonora Matteazzi & Martina Menon & Federico Perali, 2017. "The Collective Farm-household Model: Policy and Welfare Simulations," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 39(1), pages 111-153.
    8. John Creedy & Nicolas Hérault, 2009. "Optimal Marginal Income Tax Reforms: A Microsimulation Analysis," Melbourne Institute Working Paper Series wp2009n23, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    9. John Creedy & Nicolas Hérault & Guyonne Kalb, 2007. "Comparing Welfare Change Measures with Income Change Measures in Behavioural Policy Simulations," Melbourne Institute Working Paper Series wp2007n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    10. Peter C. Reiss & Matthew W. White, 2006. "Evaluating Welfare with Nonlinear Prices," NBER Working Papers 12370, National Bureau of Economic Research, Inc.
    11. John Creedy & Nicolas Hérault & Guyonne Kalb, 2009. "Abolishing the Tax-Free Threshold in Australia: Simulating Alternative Reforms," Fiscal Studies, Institute for Fiscal Studies, vol. 30(2), pages 219-246, June.
    12. Keshab Bhattarai & John Whalley, 2009. "Redistributive Effects of Transfer Programmes in the United Kingdom," Economica, London School of Economics and Political Science, vol. 76(303), pages 413-431, July.
    13. Olivier Bargain, 2012. "Decomposition analysis of distributive policies using behavioural simulations," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(5), pages 708-731, October.
    14. Creedy, John & Gemmell, Norman & Hérault, Nicolas & Mok, Penny, 2018. "Microsimulation Analysis of Optimal Income Tax Reforms. An Application to New Zealand," GLO Discussion Paper Series 213, Global Labor Organization (GLO).
    15. John Creedy & Nicolas Hérault†, 2011. "Decomposing Inequality and Social Welfare Changes : The Use of Alternative Welfare Metrics," Department of Economics - Working Papers Series 1121, The University of Melbourne.
    16. John Creedy & Norman Gemmell & Nicolas Hérault & Penny Mok, 2020. "A microsimulation analysis of marginal welfare-improving income tax reforms for New Zealand," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(2), pages 409-434, April.
    17. Boeters, Stefan & Savard, Luc, 2013. "The Labor Market in Computable General Equilibrium Models," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 1645-1718, Elsevier.

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