Family labour force participation: Multinomial logit estimates

Studies of labour force participation choices are mostly aimed at explaining determinants of participation for individuals. The objective of this study is the empirical estimation of the parameters of family participation decisions.

Family participation decisions can be analysed as a choice problem of a family between a finite number of distinct alternatives. The appropriate estimation procedure for a model involving choice among multiple discrete alternatives requires a statistical technique different from ordinary least squares. In this study I use the multinomial logit model. A logit model allows me to explain the probability that a particular participation alternative will be chosen by a family as a function of a set of independent variables.

It is found that economic variables such as wage rates and wealth, play a significant role in affecting the probabilities of choosing a particular labour force participation alternative. This study shows that an increase in the market wage for a family member not only increases the probability of labour force participation for that family member, but at the same time also reduces the probability of participation for his or her partner. Hence there is both a pure and a cross-substitution effect in participation. There is also an income effect. As wealth increases families will, in some sense, buy more leisure. Furthermore, they will allocate the extra leisure in a certain order: it is found in this study that the wife's probability of participation reduces sooner and faster than the husband's probability, as wealth increases.