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Two common assumptions in neoclassical labor supply models are relaxed by introducing hours restrictions and endogenous wages into a labor supply model. First, we incorporate the possibility that an individual is faced with a limited availability of jobs with different, distinct, numbers of hours. Moreover, the wage rate is allowed to depend on the number of working hours. The latter implies a nonlinear budget constraint. The model is estimated for data from a Dutch labor mobility survey. The results for females suggest not only the existence of hours restrictions, but also of a nonlinear budget constraint. Including both features generates a simulated hours distribution much more in line with the actual data than does a standard Tobit model.
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Tummers et al. (1991) studied this question.
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