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Improving the Modelling of Couples’ Labour Supply

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We study work hours of Australian couples using a structural labour-supply model. We introduce model improvements which allow error in wage estimation and unobserved influences on partners’ non-market time to be correlated with one another and with own wage. This more realistic model produces wage elasticities – 0.26 (men) and 0.50 (women) – twice as large as those found without these innovations. Australian Government changes to the tax and transfer system between 2004 and 2006 are predicted to have little impact on participation and labour supply. Average weekly family income is predicted to increase by $65 per week.
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Keywords: C51; D10; J22

Document Type: Research Article

Affiliations: 1: Australian National University, Canberra, Australian Capital Territory 0200, Australia 2: Australian National University, Canberra, Australian Capital Territory 0200, Australia and IZA, Bonn, Germany

Publication date: December 1, 2008

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