Accounting for Labor Demand Effects in Structural Labor Supply Models

Andreas Peichl and Sebastian Siegloch

No 5350, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: When assessing the effects of policy reforms on the labor market, most studies only focus on labor supply. The interaction of supply and demand side is not explicitly modeled, which might lead to biased estimates of potential labor market outcomes. This paper proposes a straightforward method to remedy this shortcoming. We use information on firms’ labor demand behavior and feed them into a structural labor supply model, completing the partial analysis of the labor market on the microdata level. We show the performance and relevance of our extension by introducing a pure labor supply side reform, the workfare concept, in Germany and simulating the labor market outcome of the reform. We find that demand effects offset about 25 percent of the positive labor supply effect of the policy reform.

Keywords: workfare; policy reform; labor supply; labor demand (search for similar items in EconPapers)
JEL-codes: J22 J23 J68 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2010-11
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (23)

Published - revised version published in: Labour Economics, 2012, 19 (1), 129-138

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Journal Article: Accounting for labor demand effects in structural labor supply models (2012)
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