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Structural Labour Supply Models and Microsimulation

Author

Listed:
  • Aaberge, Rolf

    () (Statistics Norway)

  • Colombino, Ugo

    () (University of Turin)

Abstract

The purpose of the paper is to provide a discussion of the various approaches for accounting for labour supply responses in microsimulation models. The paper focuses attention on two methodologies for modelling labour supply: the discrete choice model and the random utility – random opportunities model. The paper then describes approaches to utilising these models for policy simulation in terms of producing and interpreting simulation outcomes, outlining an extensive literature of policy analyses utilising these approach. Labour supply models are not only central for analyzing behavioural labour supply responses but also for identifying optimal tax-benefit systems, given some of the challenges of the theoretical approach. Combining labour supply results with individual and social welfare functions enables the social evaluation of policy simulations. Combining welfare functions and labour supply functions, the paper discusses how to model socially optimal income taxation.

Suggested Citation

  • Aaberge, Rolf & Colombino, Ugo, 2018. "Structural Labour Supply Models and Microsimulation," IZA Discussion Papers 11562, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11562
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    Keywords

    behavioural microsimulation; labour supply; discrete choice; tax reforms;

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • D10 - Microeconomics - - Household Behavior - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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