Welfare, labor supply and heterogeneous preferences: evidence for Europe and the US

Publication type

Research Paper

Series Number

6102

Series

IZA Discussion Papers

Authors

Publication date

November 15, 2011

Summary:

Following the report of the Stiglitz Commission, measuring and comparing well-being across countries has gained renewed interest. Yet, analyses that go beyond income and incorporate non-market dimensions of welfare most often rely on the assumption of identical preferences to avoid the difficulties related to interpersonal comparisons. In this paper, we suggest an international comparison based on individual welfare rankings that fully retain preference heterogeneity. Focusing on the consumption-leisure trade-off, we estimate discrete choice labor supply models using harmonized microdata for 11 European countries and the US. We retrieve preference heterogeneity within and across countries and analyze several welfare criteria which take into account that differences in income are partly due to differences in tastes. The resulting welfare rankings clearly depend on the normative treatment of preference heterogeneity with alternative metrics. We show that these differences can indeed be explained by estimated preference heterogeneity across countries – rather than demographic composition.

Subjects

Link

http://ideas.repec.org/p/iza/izadps/dp6102.html


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