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Lessons from Specification Tests for a Labour Supply Model

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  • François Laisney
  • Michael Lechner
  • Steinar Strom

Abstract

This paper investigates the properties of Box-Cox specifications for the labour supply of married women in France, estimated in four stages involving two dichotomous models, a regression with selectivity correction, and the calculation of sample means. Previous estimates implied wage elasticities high enough to be seriously questioned. We re-estimate the model with a more flexible stochastic specification and allow for some variation in the preference parameters across individuals. Furthermove, we account for a certain kind of heteroscedasticity. We submit all steps of the estimation to specification tests using among others LM tests against heteroscedasticity and misspecification of the distribution, information matrix tests, Andrews' X-tests, Vuong's LR-test for non-nested alternatives. Although we do find somewhat lower elasticities the detected heteroscedasticity or parameter stability problems appear to be serious enough to caution against use of these models for policy simulation.

Suggested Citation

  • François Laisney & Michael Lechner & Steinar Strom, 1991. "Lessons from Specification Tests for a Labour Supply Model," Annals of Economics and Statistics, GENES, issue 20-21, pages 193-217.
    • Handle: RePEc:adr:anecst:y:1991:i:20-21:p:193-217
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    File URL: http://www.jstor.org/stable/20075812
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    Cited by:

    1. McAleer, Michael, 1995. "The significance of testing empirical non-nested models," Journal of Econometrics, Elsevier, vol. 67(1), pages 149-171, May.
    2. Kaiser, Ulrich & Szczesny, Andrea, 2000. "Einfache ökonometrische Verfahren für die Kreditrisikomessung," CoFE Discussion Papers 00/28, University of Konstanz, Center of Finance and Econometrics (CoFE).

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