Modeling Wages and Hours of Work

Elina Pylkkänen ()
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Elina Pylkkänen: Ministry of Finance, Sweden

Brazilian Electronic Journal of Economics, 2001, vol. 4, issue 2

Abstract: This paper consists of two parts. In the first part we introduce a wage model and in the second part we construct a household labor supply model. Both models are intended to be a part of the dynamic micro simulation model, Sesim, developed by the Ministry of Finance, Sweden. Hourly wage rates are explained by a random coefficient panel data model. To avoid the sample-selection problem a model explaining the probability of observing a wage rate is suggested. Labor supply of single- and two-adult households are modeled as a discrete choice problem. The household labor supply model is estimated assuming that preference for leisure and consumption can be described by a direct translog utility function. When constructing the households’ budget sets the complete taxation scheme and the main social benefit programs are taken into account. The wage elasticities are estimated to about 0.3 for both females and males, irrespective of the household type. However, the responses to simulated tax reforms differ between sexes and household types.

Keywords: Hourly wage rate; Random effects; Panel data; Labor supply; Discrete choice; Policy simulation (search for similar items in EconPapers)
JEL-codes: H24 H31 H71 J22 J31 (search for similar items in EconPapers)
Date: 2001
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