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Aggregating Labour Supply And Feedback Effects In Microsimulation

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  • John Creedy
  • Alan Duncan

Abstract

This paper extends 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. These 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 a proportional change in wage rates. The third round effect is obtained after re-running a microsimulation model with a suitable modification to individuals' wage rates. The method is illustrated using the MITTS behavioural microsimulation model.

Suggested Citation

  • John Creedy & Alan Duncan, 2001. "Aggregating Labour Supply And Feedback Effects In Microsimulation," Department of Economics - Working Papers Series 823, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:823
    Note: This paper has now been published in: Creedy, J. and Duncan, A. (2005) Aggregating Labour Supply and Feedback Effects in Microsimulation, Australian Journal of Labour Economics, 8, no.3, pp. 277-290.
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    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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