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A behavioral microsimulation model with discrete labour supply for Italian couples

  • Daniele Pacifico

    ()

The aim of this paper is to introduce labour supply behaviour in an arithmetic microsimulation model so as to take into account changes in labour supply when a new policy is evaluated. I explore the performance of a labour supply estimation method based on a discrete choice set. The idea behind this approach is to work directly with preferences instead of labour supply functions. The main advantage of the discrete approach is the possibility of dealing easily with non-convex budget sets and joint labour supply. This let the discrete approach relatively suitable for policy evaluation purposes. I use the papers from Blundell, Dancan, McCrae and Meghir (1999) and Brewer, Duncan Shepard and Suarez (2006) as main references for the structural microeconometric model. Several innovative elements are taken into account with respect previous Italian studies. In particular, I allow for errors in the predicted wage for non-workers, unobserved heterogeneity in preferences, unobserved monetary fixed costs of working and child-care demand. The model is fully parametric and the Simulated Maximum Likelihood approach is used to approximate multidimensional integrals. An overview of the STATA routine for the maximum likelihood estimation is also presented. The elasticities of labour supply for married men and women are computed and discussed.

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File URL: http://www.capp.unimore.it/pubbl/cappapers/Capp_p65.pdf
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Paper provided by Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi" in its series Center for the Analysis of Public Policies (CAPP) with number 0065.

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Date of creation: Mar 2009
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Handle: RePEc:mod:cappmo:0065
Contact details of provider: Web page: http://www.capp.unimore.it

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