A symmetric approach to the labour market with the household as the unit of observation

Abstract In this paper a model for the labour market is developed which extends the traditional microeconomic studies of the labour market in two ways. First, the household is taken as the unit of observation and is considered to be the (potential) supplier of the labour of both husband and wife. The labour supply of the spouses is assumed to be jointly determined by characteristics of the household as well as individual characteristics. Second, following an earlier paper (Van Praag et al. (1991), where the female labour market is analysed separately, both the supply behaviour of the spouses and the labour demand behaviour of the employers is modelled. We apply an algorithm which needs only a few simulations per observation, while the simulation procedure generates drawings from the eight‐dimensional intervals in an efficient way. Empirical results are presented for a sample of Dutch households in 1983. With the model the impact of policy measures on employment can be evaluated. It follows that a substantial part of participation can be attributed to the ‘insider‐advantage’ for employed individuals. Further it appears that the labour market for women is more sensitive to changes in the socio‐economic environment than the labour market for men.