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Aggregating Labour Supply and Feedback Effects in Microsimulation

Author

Listed:
  • John Creedy

    () (The University of Melbourne)

  • Alan Duncan

    (University of Nottingham)

Abstract

This paper explores an extention of behavioural microsimulation modelling so that third round effects of a policy change can be simulated. The first round effects relate to fixed hours of work, while second round effects allow for changes in desired hours of work at unchanged wages. Third round effects allow for endogenous changes to the distribution of wage rates resulting from the labour supply responses to tax changes. This is achieved using the concept of an aggregate 'supply response schedule', which identifies the extent to which average labour supply responds to tax changes. This is achieved using the concept of an aggregate labour supply responds to a proportional change in wage rates. The third round effect is obtained after re-running a micro simulation model with a suitable modification to individuials' wage rates. The method is illustrated using the MITTS behavioural microsimulation model.

Suggested Citation

  • John Creedy & Alan Duncan, 2005. "Aggregating Labour Supply and Feedback Effects in Microsimulation," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 8(3), pages 277-290, September.
  • Handle: RePEc:ozl:journl:v:8:y:2005:i:3:p:277-290
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    References listed on IDEAS

    as
    1. Ashenfelter, Orley, 1980. "Unemployment as Disequilibrium in a Model of Aggregate Labor Supply," Econometrica, Econometric Society, vol. 48(3), pages 547-564, April.
    2. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-589, August.
    3. Andrew Dilnot & Alan Duncan, 1992. "Lone mothers, family credit and paid work," Fiscal Studies, Institute for Fiscal Studies, vol. 13(1), pages 1-21, February.
    4. Kennan, John, 1988. "An Econometric Analysis of Fluctuations in Aggregate Labor Supply and Demand," Econometrica, Econometric Society, vol. 56(2), pages 317-333, March.
    5. John Creedy & Alan S. Duncan & Mark Harris & Rosanna Scutella, 2002. "Microsimulation Modelling of Taxation and the Labour Market," Books, Edward Elgar Publishing, number 2796.
    6. John Muellbauer, 1981. "Linear Aggregation in Neoclassical Labour Supply," Review of Economic Studies, Oxford University Press, vol. 48(1), pages 21-36.
    7. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-121, May.
    8. Altonji, Joseph G, 1986. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 176-215, June.
    9. Creedy, John & Duncan, Alan, 2002. " Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 1-39, February.
    10. Bergmann, Barbara R, 1990. "Micro-to-Macro Simulation: A Primer with a Labor Market Example," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 99-116, Winter.
    11. Alogoskoufis, George S, 1987. "On Intertemporal Substitution and Aggregate Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 938-960, October.
    12. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-754, Sept./Oct.
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    More about this item

    Keywords

    Time Allocation and Labor Supply (hours of work; part-time employment; temporary workers; work sharing; absenteeism; quits; work-life balance) General Aggregative Models; Forecasting and Simulation;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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