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Hours Restrictions and Labor Supply

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  • William T. Dickens
  • Shelly J. Lundberg

Abstract

This study presents a model of labor supply in which individuals may face constraints on their choice of work hours, and analyzes the sensitivity of parameter estimates and policy conclusions to the usual assumption of unrestricted choice. We set up the labor supply decision asa discrete choice problem, where each worker faces a finite number of employment opportunities, each offering fixed hours of work.The distribution from which these are drawn, as well as the number of draws, is estimated along with the behavioral parameters of individual labor supply.The standard model with unconstrained hours appears as a special case where the number of draws approaches infinity. We estimate the mean absolute difference between desired and actual work hours to be about ten hours perweek. The results strongly support the notion that hours choices are constrained, and suggest that models which ignore restrictions on hours worked may yield biased estimates of the wage elasticity of desired hours. Further, we suggest that analysis of policies such as income transfers and the flat rate tax which do not consider their effects on the distribution of hours offered may be very misleading.

Suggested Citation

  • William T. Dickens & Shelly J. Lundberg, 1985. "Hours Restrictions and Labor Supply," NBER Working Papers 1638, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1638
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    1. Alan L. Gustman & Thomas L. Steinmeier, 1984. "Partial Retirement and the Analysis of Retirement Behavior," ILR Review, Cornell University, ILR School, vol. 37(3), pages 403-415, April.
    2. Lundberg, Shelly J, 1985. "Tied Wage-Hours Offers and the Endogeneity of Wages," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 405-410, August.
    3. Moffitt, Robert, 1982. "The Tobit Model, Hours of Work and Institutional Constraints," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 510-515, August.
    4. Rosen, Harvey S, 1976. "Taxes in a Labor Supply Model with Joint Wage-Hours Determination," Econometrica, Econometric Society, vol. 44(3), pages 485-507, May.
    5. Deaton, Angus & Meullbauer, John, 1981. "Functional Forms for Labor Supply and Commodity Demands with and without Quantity Restrictions," Econometrica, Econometric Society, vol. 49(6), pages 1521-1532, November.
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