Beffy, Magali Blundell, Richard Bozio, Antoine Laroque, Guy
Year of Publication:
IFS Working Papers W14/04
A model of labour supply is developed in which individuals face restrictions on hours choices. Observed hours reflect both the distribution of preferences and the distribution of off ers. In this framework the choice set is limited and observed hours may not appear to satisfy the revealed preference conditions for 'rational' choice. We show fi rst that when the o ffer distribution is known, preferences can be identi fied. We then show that, where preferences are known, the o ffer distribution can be fully recovered. We also develop conditions for identi fication of both preferences and the o ffer distribution. We illustrate this approach in a labour supply setting with non-linear budget constraints. The occurrence of non-linearities in the budget constraint can directly reveal restrictions on choices. This framework is then used to study the labour supply choices of a large sample of working age mothers in the UK, accounting for nonlinearities in the tax and welfare benefi t system, fixed costs of work and restrictions on hours choices.