Sectoral labour supply, choice restrictions and functional form

Steinar StrØm and John K. Dagsvik
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Steinar StrØm: University of Oslo, Oslo, Norway, Postal: University of Oslo, Oslo, Norway

Journal of Applied Econometrics, 2006, vol. 21, issue 6, pages 803-826

Abstract: In this paper we discuss a general framework for analysing labour supply behaviour in the presence of complicated budget and quantity constraints, of which some are unobserved. The individual's labour supply decision is viewed as a choice from a set of discrete alternatives (jobs). These jobs are characterized by attributes such as hours of work, sector-specific wages and other sector-specific aspects of the jobs.

The labour supply model for married women is estimated on Norwegian data. Wage elasticities and the outcome of a tax reform experiment show that overall labour supply is moderately elastic, but these modest overall responses shadow for much stronger inter-sectoral changes. Our model is compared with a discrete choice model in which the utility is assumed to be a polynomial. We show that our estimated model has a more economically sensible interpretation and fits the data as well as the alternative approach. Copyright © 2006 John Wiley & Sons, Ltd.

Date: 2006
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Related works:
Working Paper: Sectoral Labor Supply, Choice Restrictions and Functional Form (2004)
Working Paper: Sectoral labor supply, choice restrictions and functional form (2004)
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