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A rich life cycle model of labor supply in Finland

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  • Antti J. Tanskanen

Abstract

A life cycle model of consumption and labor supply describes employment decisions of a collection of individuals during their lifetime. We develop a life cycle model describing a heterogeneous population operating in Finland under a wide variety of employment states and life situations. A rich life cycle model requires a large state space representing the possible states of simulated agents. The results demonstrate that the model reproduces a number of statistics of the Finnish employment market such as the age structures of employment rate and unemployment rate, distributions of observed effective marginal tax rates and participating tax rates, and proportion of part time work. As an application of analysis of a reform, we analyze how the program of Orpo government influences employment and public finances in Finland.

Suggested Citation

  • Antti J. Tanskanen, 2025. "A rich life cycle model of labor supply in Finland," Papers 2511.00660, arXiv.org.
    • Handle: RePEc:arx:papers:2511.00660
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    References listed on IDEAS

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    1. David M. Blau, 2008. "Retirement and Consumption in a Life Cycle Model," Journal of Labor Economics, University of Chicago Press, vol. 26(1), pages 35-71.
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    3. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
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    5. Tomi Kyyrä & Hanna Pesola, 2020. "The Effects of UI Benefits on Unemployment and Subsequent Outcomes: Evidence from a Kinked Benefit Rule," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(5), pages 1135-1160, October.
    6. John P. Rust, 1989. "A Dynamic Programming Model of Retirement Behavior," NBER Chapters, in: The Economics of Aging, pages 359-404, National Bureau of Economic Research, Inc.
    7. Antti J. Tanskanen, 2020. "Deep reinforced learning enables solving rich discrete-choice life cycle models to analyze social security reforms," Papers 2010.13471, arXiv.org, revised Feb 2022.
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