Multi-family households in a labour supply model: a calibration method with application to Poland∗

The collective model of labour supply opened the household “black box” and allowed for individual treatment of partners in couples. However, the literature on labour supply has so far largely ignored a broader issue with special relevance to transition and developing countries the distinction of single versus multifamily (“complex”) households. We propose a method to account for the multifamily structure by borrowing from recent applications of the collective model and combining estimation and calibration to identify the degree of resource sharing. We assume that each household is characterised by a between-family sharing parameter, which is calibrated on estimated preferences, the observed labour market status and other characteristics. The key identifying assumption is that preferences over income and leisure of specific family types living in single and multi-family households are the same conditional on observable characteristics. Results of the calibrated model are compared to an extension of a “standard” labour supply model that does not explicitly account for sharing. We apply the method to Polish labour market data.