Institutional constraints on the working week length, fixed costs and female labour supply

Abstract

Most of existing studies on labour supply, starting from Heckman (1974), estimate individual preferences by assuming that hours of work are freely chosen, hence optimal with respect to individual preferences. In sharp contrast with this assumption, in several countries the distribution of actual hours of work exhibits large peaks at certain hour regimes, presumably determined by institutional constraints. In this paper a model is introduced replacing the standard assumption by a much weaker one: observed hours of work rather than being optimal are acceptable. Every person is characterized by a maximum acceptable hours of work and choose about participation at work by comparing them to the number of hours they should work if they choose to participate. Attention is focused on maximum acceptable hours of work and some other related concepts. In fact, their relationship with the direct utility function turns out to be straightforward. Moreover, it is shown that in this framework (I) fixed costs to participate at work are identifiable, as well and (II) no relevant change in the analysis is needed if the budget constraint is not linear, but known, due to reasons other than fixed costs of participation. An application to married women labour supply in two region in the NE of Italy is presented.