Welfare, Labor Supply and Heterogeneous Preferences: Evidence for Europe and the US
Institute for the Study of Labor (IZA); University College Dublin (UCD)
KU Leuven - Center for Economic Studies
Institute for the Study of Labor (IZA); University of Cologne
University of Cologne
Institute for the Study of Labor (IZA); University of Cologne - Cologne Centre for Public Economics (CPE); University of Essex - Institute for Social and Economic Research (ISER)
Institute for the Study of Labor (IZA); University of Cologne - Department of Economics
IZA Discussion Paper No. 6102
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.
Number of Pages in PDF File: 30
Keywords: welfare measures, preference heterogeneity, labor supply, Beyond GDP
JEL Classification: C35, D63, H24, H31, J22working papers series
Date posted: November 20, 2011
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