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Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation
Author(s) -
Creedy John,
Kalb Guyonne
Publication year - 2005
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.0950-0804.2005.00265.x
Subject(s) - microsimulation , discrete choice , economics , econometrics , estimation , labour supply , analytics , social security , microeconomics , computer science , engineering , data science , management , transport engineering , market economy
. 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. At the end, an empirical example of a hypothetical policy change to the social security system is given to illustrate the role of discrete hours microsimulation in the analysis of tax and transfer policy changes.