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Simulating labor supply behavior when workers have preferences for job opportunities and face nonlinear budget constraints
By Dagsvik, John K., Marilena Locatelli and Steinar Strøm
Memorandum 20/2006
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Abstract |
This paper analyzes the properties of a particular sectoral labor supply model developed and
estimated in Dagsvik and Strøm (2006). In this model, agents have preferences over sectors and
latent job attributes. Moreover, the model allows for a representation of the individual choice sets of
feasible jobs in the economy. The properties of the model are explored by calculating elasticities and
through simulations of the effects of particular tax reforms. The overall wage elasticities are rather
small, but these small elasticities shadow for much stronger sectoral responses. An overall wage
increase and, of course, a wage increase in the private sector only, gives women an incentive to shift
their labor supply from the public to the private sector. Marginal tax rates were cut considerably in the
1992 tax reform. We find that the impact on overall labor supply is rather modest, but again these
modest changes shadow for stronger sectoral changes. The tax reform stimulated the women to shift
their labor from the public to the private sector and to work longer hours. A calculation of mean
compensated variation shows that the richest households benefited far more from the 1992 tax
reform than did the poorest households. |
| JEL Classification:
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J22, C51 |
| Keywords:
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Labor supply, married females, structural model, sectoral choice, wage elasticities,
evaluation of tax reforms |
| Project:
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1143 Evaluation of tax reforms 1992, labor supply effects
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