Marginal Compensated Effects in Discrete Labor Supply Models

44 Pages Posted: 21 Feb 2019

See all articles by John K. Dagsvik

John K. Dagsvik

Statistics Norway

Steinar Strøm

University of Oslo - Ragnar Frisch Centre for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Marilena Locatelli

University of Turin - Department of Economics

Date Written: 2019

Abstract

This paper develops analytic results for marginal compensated effects of discrete labor supply models, including Slutsky equations. It matters, when evaluating marginal compensated effects in discrete choice labor supply models, whether one considers wage increase (right marginal effects) or wage decrease (left marginal effects). We show how the results obtained can be used to calculate the marginal cost of public funds in the context of discrete labor supply models. Subsequently, we use the empirical labor supply model of Dagsvik and Strøm (2006) to compute numerical compensated (Hicksian) and uncompensated marginal (Marshallian) effects resulting from wage changes. The mean Hicksian labor supply elasticities are larger than the Marshallian, but the difference is small.

Keywords: Slutsky equations, discrete choice labor supply

JEL Classification: J220, C510

Suggested Citation

Dagsvik, John K. and Strøm, Steinar and Locatelli, Marilena, Marginal Compensated Effects in Discrete Labor Supply Models (2019). CESifo Working Paper No. 7493, Available at SSRN: https://ssrn.com/abstract=3338849

John K. Dagsvik (Contact Author)

Statistics Norway ( email )

N-0033 Oslo
Norway
22 86 48 71 (Phone)

Steinar Strøm

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Marilena Locatelli

University of Turin - Department of Economics ( email )

Lungo Dora Siena, 100A
Torino, 10156
Italy
+39 011 6703894 (Phone)
+39 011 6703895 (Fax)

HOME PAGE: http://www.de.unito.it/web/member/locatelli/personal-inf.htm

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