Discrete choice modelling of labour supply and informal employment using ECUAMOD

This technical note presents one of the modelling approaches used in Jara and Rattenhuber (2022) to estimate formal employment elasticities, namely the estimation of a discrete choice model of labour supply with informal employment. The approach makes use of ECUAMOD, the tax-benefit model for Ecuador, to calculate the disposable income at each discrete alternative defined in terms of hours of work and sector of employment (formal or informal employment). The ECUAMOD outputs are then used as input in the estimation of a conditional logit model of labour supply. The note first describes the data preparations to simulate disposable income at each discrete alternative using ECUAMOD. Then, it presents the modelling set-up for the estimation of the discrete choice model of labour supply with informal employment. Finally, it presents formal employment elasticities across population subgroups based on our estimations.