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Sectoral labour supply, choice restrictions and functional form

Author

Listed:
  • Steinar StrØm

    (University of Oslo, Oslo, Norway)

  • John K. Dagsvik

    (Statistics Norway, Research Department, P.O. Box 8131 Dep., N-0033 Oslo, Norway)

Abstract

In this paper we discuss a general framework for analysing labour supply behaviour in the presence of complicated budget and quantity constraints, of which some are unobserved. The individual's labour supply decision is viewed as a choice from a set of discrete alternatives (jobs). These jobs are characterized by attributes such as hours of work, sector-specific wages and other sector-specific aspects of the jobs. The labour supply model for married women is estimated on Norwegian data. Wage elasticities and the outcome of a tax reform experiment show that overall labour supply is moderately elastic, but these modest overall responses shadow for much stronger inter-sectoral changes. Our model is compared with a discrete choice model in which the utility is assumed to be a polynomial. We show that our estimated model has a more economically sensible interpretation and fits the data as well as the alternative approach. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • Steinar StrØm & 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.
  • Handle: RePEc:jae:japmet:v:21:y:2006:i:6:p:803-826 DOI: 10.1002/jae.866
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    References listed on IDEAS

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    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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