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Labor supply as a discrete choice among latent jobs

This paper discusses a modeling framework in which workers are assumed to choose their preferred job from latent worker-specific choice sets. This point of departure yields a framework that formalizes the widely used ad hoc approaches (fixed cost of working and dummies at peak hours) in the literature of discrete labor supply models. We discuss the conditions under which the preferences and job opportunity restrictions can be separated using conventional data on hours and wages only. Subsequently, we show that the framework is consistent with stochastic choice sets and a relaxation of the IIA assumption. An empirical model version for married/cohabiting couples is estimated using Norwegian micro data. Based on the empirical model, we discuss further important empirical issues, such as functional form, prediction performance and simulation of counterfactual policy reforms.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 709.

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Date of creation: Oct 2012
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Handle: RePEc:ssb:dispap:709
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  1. Barzel, Yoram, 1973. "The Determination of Daily Hours and Wages," The Quarterly Journal of Economics, MIT Press, vol. 87(2), pages 220-38, May.
  2. 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.
  3. Wolf, Elke, 2002. "Lower wage rates for fewer hours? A simultaneous wage-hours model for Germany," Labour Economics, Elsevier, vol. 9(5), pages 643-663, November.
  4. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  5. Tom Kornstad & Thor O. Thoresen, 2002. "A Discrete Choice Model for Labor Supply and Child Care," Discussion Papers 315, Research Department of Statistics Norway.
  6. Hans G. Bloemen, 2008. "Job Search, Hours Restrictions, and Desired Hours of Work," Journal of Labor Economics, University of Chicago Press, vol. 26, pages 137-179.
  7. Hausman, Jerry & Ruud, Paul, 1984. "Family Labor Supply with Taxes," American Economic Review, American Economic Association, vol. 74(2), pages 242-48, May.
  8. John C. Ham & Kevin T. Reilly, 2002. "Testing Intertemporal Substitution, Implicit Contracts, and Hours Restriction Models of the Labor Market Using Micro Data," American Economic Review, American Economic Association, vol. 92(4), pages 905-927, September.
  9. Bloemen, H.G., 1998. "A Model of Labour Supply With Job Offer Restrictions," Discussion Paper 1998-140, Tilburg University, Center for Economic Research.
  10. Ilmakunnas, Seija & Pudney, Stephen, 1990. "A model of female labour supply in the presence of hours restrictions," Journal of Public Economics, Elsevier, vol. 41(2), pages 183-210, March.
  11. van Soest, A.H.O. & Das, J.W.M. & Gong, X., 2001. "A Structural Labour Supply Model with Flexible Preferences," Other publications TiSEM 07a46b83-f128-4ea5-8498-9, Tilburg University, School of Economics and Management.
  12. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
  13. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  14. Dagsvik, John K. & Strøm, Steinar, 2004. "Sectoral labor supply, choice restrictions and functional form," Memorandum 13/2004, Oslo University, Department of Economics.
  15. Arthur van Soest & Isolde Woittiez & Arie Kapteyn, 1990. "Labor Supply, Income Taxes, and Hours Restrictions in the Netherlands," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 517-558.
  16. Dickens, William T & Lundberg, Shelly J, 1993. "Hours Restrictions and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 169-92, February.
  17. Hans G. Bloemen & Arie Kapteyn, 2008. "The estimation of utility-consistent labor supply models by means of simulated scores," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(4), pages 395-422.
  18. John Dagsvik & Kristian Orsini & Zhiyang Jia, 2008. "Subsidies on low skilled's social security contributions: the case of Belgium," Center for Economic Studies - Discussion papers ces0816, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  19. Farzin, Y.H., 2009. "The effect of non-pecuniary motivations on labor supply," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(4), pages 1236-1259, November.
  20. 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.
  21. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
  22. Stewart, M.B. & Swaffield, J.K., 1996. "Constraints on the Desired Hours of Work of British Men," The Warwick Economics Research Paper Series (TWERPS) 468, University of Warwick, Department of Economics.
  23. Dagsvik, John K, 1994. "Discrete and Continuous Choice, Max-Stable Processes, and Independence from Irrelevant Attributes," Econometrica, Econometric Society, vol. 62(5), pages 1179-1205, September.
  24. John K. Dagsvik & Zhiyang Jia, 2006. "Labor Supply as a Choice among Latent Job Opportunities. A Practical Empirical Approach," Discussion Papers 481, Research Department of Statistics Norway.
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