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Marginal Compensated Effects in Discrete Labor Supply Models

John K. Dagsvik, Steinar Strøm and Marilena Locatelli ()

No 7493, CESifo Working Paper Series from CESifo Group Munich

Abstract: This paper develops analytic results for marginal compensated effects of discrete labor supply models, including Slutsky equations. It matters, when evaluating marginal compensated effects in discrete choice labor supply models, whether one considers wage increase (right marginal effects) or wage decrease (left marginal effects). We show how the results obtained can be used to calculate the marginal cost of public funds in the context of discrete labor supply models. Subsequently, we use the empirical labor supply model of Dagsvik and Strøm (2006) to compute numerical compensated (Hicksian) and uncompensated marginal (Marshallian) effects resulting from wage changes. The mean Hicksian labor supply elasticities are larger than the Marshallian, but the difference is small.

Keywords: Slutsky equations; discrete choice labor supply (search for similar items in EconPapers)
JEL-codes: J22 C51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm and nep-lma
Date: 2019
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