Using information on desired and actual hours of work, we formulate a discrete choice model
of constrained labor supply. Using the German Socio-Economic Panel and the microsimulation
model STSM, we find that hours and participation elasticities are substantially smaller than those
in the conventional model. We evaluate two reforms for Germany. Both redistribute to the working
poor. The first reform is financed through an increase in the effective marginal tax rate for welfare
recipients, the second through an increase in taxes. The first reform is desirable with equal
weights, the second if the social planner has substantial redistributive taste
