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Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation

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Abstract
The assumption behind discrete hours labour supply modelling is that utility-maximising individuals choose from a relatively small number of hours levels, rather than being able to vary hours worked continuously. Such models are becoming widely used in view of their substantial advantages, compared with a continuous hours approach, when estimating and their role in tax policy microsimulation. This paper provides an introduction to the basic analytics of discrete hours labour supply modelling. Special attention is given to model specification, maximum likelihood estimation and microsimulation of tax reforms. The analysis is at each stage illustrated by the use of numerical examples.

Suggested Citation

  • John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Treasury Working Paper Series 03/20, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:03/20
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    File URL: https://treasury.govt.nz/sites/default/files/2018-01/twp03-20.pdf
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Discrete hours labour supply; multinomial logit; maximum likelihood estimation; microsimulation;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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