Abstract

We analyze labor supply behavior and the choice between formal and informal sector work of the two spouses in families in urban areas of a developing country, using cross-section data from Bolivia drawn in 1989. The model generalizes the neoclassical family labor supply model. Nonmonetary returns of formal sector employment capture the fact that the choice between sectors is not exclusively based on wage differentials. Wage equations, nonmonetary returns equations, and labor supply equations are estimated jointly by smooth simulated maximum likelihood. We find substantial cross-wage elasticities of working hours of both partners, and large substitution elasticities between the two sectors.

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