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Labour Supply and Welfare Participation in Australian Two-Adult Households: Accounting for Involuntary Unemployment and the 'Cost' of Part-time Work

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  • Guyonne R. Kalb

Abstract

We estimate a simultaneous discrete choice model for welfare participation and labour supply of two-adult households in Australia using the Income and Housing Costs Survey of 1994/1995. In this paper only unemployment-related welfare payments are considered. Welfare participation is assumed to have a positive indirect effect (through income) and a negative direct effect on utility. This approach allows for non-participation of eligible people. An earlier developed labour supply and welfare participation model is extended in this paper by adding employment equations to account for involuntary unemployment. In addition, a part-time penalty term is included in the utility function to allow for monetary or non-monetary costs of working part time and the number of discrete choices is increased. The first two extensions seem to improve the model's ability to simulate the correct distribution of actual labour supply. Without these extensions, labour force non-participation is under-estimated and the number of people in part-time employment is over-estimated. The results indicate that there is evidence of a significant disutility associated with welfare participation for all specifications of the model. We also find that a change in the benefit withdrawal rate or the maximum benefit level does not seem to have a large effect on the actual labour supply of either adult.

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  • 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.
    • Handle: RePEc:cop:wpaper:bp-35
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    References listed on IDEAS

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    Cited by:

    1. Rolf Aaberge & Ugo Colombino, 2018. "Structural Labour Supply Models and Microsimulation," International Journal of Microsimulation, International Microsimulation Association, vol. 11(1), pages 162-197.
    2. Guyonne Kalb & Rosanna Scutella, 2002. "Estimation of Wage Equations in Australia: Allowing for Censored Observations of Labour Supply," Melbourne Institute Working Paper Series wp2002n08, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    3. Robert Breunig & Deborah A. Cobb‐Clark & Xiaodong Gong, 2008. "Improving the Modelling of Couples’ Labour Supply," The Economic Record, The Economic Society of Australia, vol. 84(267), pages 466-485, December.
    4. Sandra Dandie & Joseph Mercante, 2007. "Australian labour supply elasticities: Comparison and critical review," Treasury Working Papers 2007-04, The Treasury, Australian Government, revised Oct 2007.
    5. Guyonne Kalb & Rosanna Scutella, 2004. "Wage and employment rates in New Zealand from 1991 to 2001," New Zealand Economic Papers, Taylor & Francis Journals, vol. 38(1), pages 21-47.
    6. Alfred Michael Dockery & Rachel Ong & Gavin Wood, 2011. "Measuring Worker Disincentives: Taxes, Benefits and the Transition into Employment," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 14(3), pages 265-288.
    7. Joseph Mercante & Penny Mok, 2014. "Estimation of Labour Supply in New Zealand," Treasury Working Paper Series 14/08, New Zealand Treasury.
    8. Jürgen Wiemers, 2015. "Endogenizing take-up of social assistance in a microsimulation model. A case study for Germany," International Journal of Microsimulation, International Microsimulation Association, vol. 8(2), pages 4-27.
    9. Guyonne Kalb & Rosanna Scutella, 2003. "New Zealand Labour Supply from 1991-2001: An Analysis Based on a Discrete Choice Structural Utility Model," Treasury Working Paper Series 03/23, New Zealand Treasury.
    10. Hielke BUDDELMEYER & Guyonne KALB, 2008. "Labour Supply and Welfare Participation in the Australian Population: Using Observed Job Search to Account for Involuntary Unemployment," EcoMod2008 23800020, EcoMod.
    11. Guyonne Kalb, 2002. "Estimation of Labour Supply Models for Four Separate Groups in the Australian Population," Melbourne Institute Working Paper Series wp2002n24, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    12. John Creedy & Guyonne Kalb, 2005. "Measuring Welfare Changes In Labour Supply Models," Manchester School, University of Manchester, vol. 73(6), pages 664-685, December.
    13. Alfred Michael Dockery & Paul Flatau, 2008. "An analysis of the impact of tax and welfare reform measures on effective marginal tax rates in Australia 1982-2002," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 11(3), pages 203-226.
    14. Penny Mok & Joseph Mercante, 2014. "Working for Families changes: The effect on labour supply in New Zealand," Treasury Working Paper Series 14/18, New Zealand Treasury.

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    More about this item

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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