Chapter 7: Labour Supply Models

The encounter between microeconometric models of labour supply and the microsimulation approach is the result of a long process. Large microsimulation models, as originally proposed by Orcutt (1957), were meant to be behavioural, although not structural: behavioural responses were typically empirical ‘reduced form’ approximations, with little foundations on standard microeconomic theory (Orcutt, Greenberger, Korbel, & Rivlin, 1961). A motivation for the reduced form approach was probably a certain degree of mistrust for mainstream economic theory on the part of Orcutt and his associates. Shortly after, large microsimulation models became increasingly popular at the institutional and policy making level. For good reasons, the main research and implementation efforts were initially focussed upon the quality of data, the accuracy of the accounting relationships and representativeness of the results. For many years, the active microsimulation community has considered behavioural responses (and in particular labour supply) either unimportant or unreliable or hard to interpret. Later on, however, various motivations have progressively contributed to a more positive attitude towards the inclusion of labour supply responses into microsimulation models: