EconPapers    
Economics at your fingertips  
 

Intransigencies in the Labour Supply Choice

Mark Harris () and Alan Duncan ()

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: There have been significant recent advances in the estimation of labour supply models. Here the hours continuum is split into a number of discrete options and the preferred choice obtained as the solution to a constrained utility maximisation problem. However, the underlying probabilities of an individual being in a particular hours state, are assumed to be those given by standard Logit-type ones. As is well known, such a specification embodies the underlying Independence of Irrelevant Alternatives (IIA) property, which is likely to be violated in a model of labour supply choices. Moreover, if such models are used in microsimulation, they implicitly assume that individuals are able to change their observed hours state at the margin following a policy reform. This paper suggests an alternative general (non-IIA) specification for these probabilities, which can additionally incorporate the fact that: individuals may be captive to certain choices (for example, due to institutional reasons). Moreover, this model has the benefit that when used for microsimulation, the reform has to work harder to coax individuals out of the captive hours states. The results suggest that, for sole parents, the Logit model is misspecified and there is a significant amount of captivity, most notably to full-time employment hours. The effect of such captivity on microsimulation is illustrated by considering a range of actual and hypothetical policy reform.

New Economics Papers: this item is included in nep-dcm and nep-lab
Date: 2002-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14) Track citations by RSS feed

Downloads: (external link)
http://melbourneinstitute.unimelb.edu.au/downloads ... series/wp2002n17.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2002n17

Access Statistics for this paper

More papers in Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Sheri Carnegie ().

 
Page updated 2019-09-15
Handle: RePEc:iae:iaewps:wp2002n17