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Estimation of Labour Supply in New Zealand

  • Joseph Mercante
  • Penny Mok

    ()

    (The Treasury)

In this paper we estimate labour supply using a discrete choice approach for single men, single women and single parents and a joint labour supply equation for couples in New Zealand. The data are based on pooled cross-sectional data from the Household Economic Survey over 2006/07 to 2010/11. We allow singles to choose from eleven discrete hours whilst couples choose from 66 combined working hour choices. Net incomes at all possible discrete working-hours are calculated using Treasury’s TAXWELL microsimulation model. For non-workers, net incomes are estimated based on an imputed wage. In order to fit the model to the observed working hour distribution we include a fixed cost of working parameter and we explicitly take account of observed and unobserved heterogeneity in the data. We find that the coefficient estimates of the labour supply equations mostly accord with expectations and are reasonably comparable with previously estimated equations for New Zealand. Using the equations we find that the labour supply predictions fit the observed data reasonably well. However, despite the inclusion of a fixed cost of working parameter, the peak working hours of around 40 hours per week in the observed data is under-predicted by the models, while part-time hours of work remain over-predicted. We compute labour supply elasticities from the estimated parameters which show that single parents and single women are the most responsive, whilst partnered men and single men are the least responsive.

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File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2014/14-08/twp14-08.pdf
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Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 14/08.

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Length: 52
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:nzt:nztwps:14/08
Contact details of provider: Postal: New Zealand Treasury, PO Box 3724, Wellington, New Zealand
Phone: +64-4-472 2733
Fax: +64-4-473 0982
Web page: http://www.treasury.govt.nz
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  1. John Creedy & Guyonne Kalb, 2005. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 697-734, December.
  2. Joseph Mercante & Penny Mok, 2014. "Estimation of wage equations for New Zealand," Treasury Working Paper Series 14/09, New Zealand Treasury.
  3. Rosanna Scutella & Guyonne Kalb, 2004. "New Zealand Labour Supply from 1991-2001: an analysis based on a discrete choice structural utility model," Econometric Society 2004 Australasian Meetings 182, Econometric Society.
  4. Hausman, Jerry A., 1979. "The econometrics of labor supply on convex budget sets," Economics Letters, Elsevier, vol. 3(2), pages 171-174.
  5. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-89, August.
  6. William T. Dickens & Shelly J. Lundberg, 1985. "Hours Restrictions and Labor Supply," NBER Working Papers 1638, National Bureau of Economic Research, Inc.
  7. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
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