A Collective Labor Supply Model

Identification and Estimation in the Presence of Externalities By Means of Panel Data

by Pierre-Carl Michaud, Frederic Vermeulen

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The authors study labor supply of elderly couples by means of a collective model. The model allows individuals to enjoy leisure more (or less) in company of their spouse (complementarity/ externalities in leisure). Preferences and the intra-household bargaining process are identified by using panel data through the dissolution of the household due to the death of one of the partners. The model does not only look at the extensive margin (working versus being retired), but also at the intensive margin (how many hours are worked). They apply the model to American households coming from the first six waves of the Health and Retirement Study. They compare model simulations with those from a standard unitary model for a set of policy reforms; such as the widely discussed proposals to eliminate the earnings test and the replacement of the spouse benefit with a past earnings sharing mechanism.

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