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Family labour supply and labour force participation decisions Theeuwes, Jules J. M.

Abstract

The main objective of this study is the empirical estimation of family labour force participation functions. The appropriate estimation procedure for a model involving choice among multiple discrete alternatives requires a statistical technique different from ordinary least squares. In this study I use the binomial and multinomial logit model to estimate parameters affecting the probabilities of choosing a particular labour force alternative. A theoretical contribution of this thesis to the econometric literature is the development of a procedure which, in the context of the multinomial logit model, allows one to test whether decision making is sequential or simultaneous. This procedure is applied in testing whether the family chooses simultaneously among possible alternatives or whether one partner decides first about participation and the other partner decides conditional upon the first. Using a Bayesian dicrimination technique it is found that the simultaneous decision model is more probable posteriori than the sequential model. A substantial portion of the empirical research in this study involves the estimation and comparison of family labour force participation and labour supply decisions. I attempt to discriminate statistically between the hypothesis that the parameters of supply and participation are either the same or that they are different and conclude that the hypothesis of different parameters is more probable, posteriori. In addition, the comparison of the parameters of family labour supply and labour force participation leads to interesting results, e.g., the substitution effect on both participation and supply behaviour of husband and wife. Another use of the estimated labour supply and labour force participation functions involves combining them to form unconditional labour supply functions. It is indicated that unconditional labour supply functions could be useful to evaluate the combined effect on supply and participation of a labour market policy.

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