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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 Statistics Norway, Research Department 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. Bloemen, H.G. & Kapteyn, A., 1993. "The Estimation of Utility Consistent Labor Supply Models by Means of Simulated Scores," Papers 9367, Tilburg - Center for Economic Research.
  2. 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.
  3. Yoram Barzel, 1973. "The Determination of Daily Hours and Wages," The Quarterly Journal of Economics, Oxford University Press, vol. 87(2), pages 220-238.
  4. John K. Dagsvik & Zhiyang Jia, 2006. "Labor Supply as a Choice among Latent Job Opportunities. A Practical Empirical Approach," Discussion Papers 481, Statistics Norway, Research Department.
  5. 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.
  6. John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Treasury Working Paper Series 03/20, New Zealand Treasury.
  7. 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.
  8. Bloemen, Hans G., 2000. "A model of labour supply with job offer restrictions," Labour Economics, Elsevier, vol. 7(3), pages 297-312, May.
  9. 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.
  10. Jerry A. Hausman & Paul Ruud, 1984. "Family Labor Supply With Taxes," NBER Working Papers 1271, National Bureau of Economic Research, Inc.
  11. van Soest, A.H.O. & Woittiez, I.B. & Kapteyn, A.J., 1989. "Labour supply, income taxes and hours restrictions in the Netherlands," Discussion Paper 1989-3, Tilburg University, Center for Economic Research.
  12. 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.
  13. 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.
  14. 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.
  15. Bloemen, H.G., 2002. "Job search, hours restrictions and desired hours of work," Serie Research Memoranda 0038, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  16. 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.
  17. John K. Dagsvik & Steinar Strøm, 2004. "Sectoral Labor Supply, Choice Restrictions and Functional Form," Discussion Papers 388, Statistics Norway, Research Department.
  18. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  19. William T. Dickens & Shelly J. Lundberg, 1985. "Hours Restrictions and Labor Supply," NBER Working Papers 1638, National Bureau of Economic Research, Inc.
  20. Tom Kornstad & Thor Thoresen, 2007. "A discrete choice model for labor supply and childcare," Journal of Population Economics, Springer;European Society for Population Economics, vol. 20(4), pages 781-803, October.
  21. 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.
  22. 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.
  23. John Dagsvik & Kristian Orsini & Zhiyang Jia, 2008. "Subsidies on low skilled's social security contributions: the case of Belgium," Working Papers Department of Economics ces0816, KU Leuven, Faculty of Economics and Business, Department of Economics.
  24. 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.
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