The Treasury

Global Navigation

Personal tools

You are here: Home > Publications > Research and Policy > Working Papers > 2003 > Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation (WP 03/20)

Treasury
Publication

Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation - WP 03/20

Publication Details

  • Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation
  • Published: Sep 2003
  • Status: Current
  • Authors: Creedy, John; Kalb, Guyonne
  • JEL Classification: C15; C25; C50; D10
  • Hard copy: Available in HTML and PDF formats only.
 

Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation

New Zealand Treasury Working Paper 03/20

Published: September 2003

Authors: John Creedy and Guyonne Kalb

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.

Table of Contents

Browse section/chapter Download/Page range

Abstract

Table of Contents

List of Tables

List of Figures

1 Introduction

2 The basic model

3 A numerical example of hours probabilities

4 Specification of the error distribution

5 Parameter estimation

6 A numerical example of estimation

7 Alternative specifications

8 Tax reforms and simulations

9 Conclusions

Appendix: An iterative solution procedure

References

twp03-20.pdf (416 KB) pp. 38

List of Tables

List of figures

Acknowledgements

We should like to thank Nathan McClellan and Jenny Williams for comments on an earlier draft of this paper

Disclaimer

The views expressed in this Working Paper are those of the author(s) and do not necessarily reflect the views of the New Zealand Treasury. The paper is presented not as policy, but with a view to inform and stimulate wider debate.

Page top