Empirical life cycle models of labour supply and - Statistisk sentralbyrå

Abstract
Tom Kornstad
Empirical Life Cycle Models of Labour Supply and Consumption
Doctoral dissertation at the University of Oslo, Department of Economics,
defended 9th April 1994
Social and Economic Studies 91 • Statistics Norway 1995
The main purpose of this doctoral thesis is to formulate and estimate a structural life cycle model of
married couples' labour suppy and consumption of durables and non-durables.
According to the life cycle theory households' labour supply and consumption of durables and nondurables
are determined conditional on the household's expectations about future prices and variables
influencing future preferences. This fact indicates that estimation of life cycle preferences requires very
much data for each household, and chapter 2 explores whether estimation of structural life cycle models
is possible in the absence of some of these data. The chapter presents the various approaches, and
points at the data requirements and what kind of simplifications with respect to model specifications
that are invoked. These simplifications may include intertemporal as well as intratemporal separable preferences,
no binding constraints in the credit market, and no income taxation. The chapter concludes
that we cannot be satisfied with the state of the art.
Chapter 3 presents and estimates a structural life cycle model of married couples' labour supply and consumption
of durables and non-durables. This chapter takes the problems with measuring consumption
of durables and non-durables seriously, and it allows habit formation in the demand for durables. Using
Hicks' composite good theorem, we can estimate a life cycle model of a particular aggregate of durables
and non-durables (and leisure) without observing the consumption of non-durables, and the price and
the physical stock of durables. The estimation uses data from the Income Distribution Survey 1988,
1989 and 1990, and the Standard of Living Survey 1991. The estimation results suffer from the fact that
the time span of the panel data is too short.
In a fourth chapter of the thesis it is studied how the Norwegian income tax system distorts relative user
prices between housing, non-durables and leisure for married and unmarried wage income earners. The
analysis is based on a general life cycle model where households are assumed to have perfect certainty
with respect to future prices and preferences. Empirical calculations are presented for 1985/86, 1989/90
and 1992193, and they include average distortions and distribution tables. Even after the 1992 tax reform
the income tax system still distorts some of the relative user prices considerably. This chapter of the
thesis has been omitted in this volume.
Keywords: Consumption, durables, empirical, labour supply, life cycle models.
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