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Classification Error in Dynamic Discrete Choice Models: Implications for Female Labor Supply Behavior

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  • Michael P. Keane
  • Robert M. Sauer

Abstract

Two key issues in the literature on female labor supply are (i) whether persistence in employment status is due to unobserved heterogeneity or state dependence, and (ii) whether fertility is exogenous to labor supply. Until recently, the consensus was that unobserved heterogeneity is very important and fertility is endogenous. Hyslop (1999) challenged this. Using a dynamic panel probit model of female labor supply including heterogeneity and state dependence, he found that adding autoregressive errors led to a substantial diminution in the importance of heterogeneity. This, in turn, meant he could not reject that fertility is exogenous. Here, we extend Hyslop (1999) to allow classification error in employment status, using an estimation procedure developed by Keane and Wolpin (2001) and Keane and Sauer (2005). We find that a fairly small amount of classification error is enough to overturn Hyslop's conclusions, leading to overwhelming rejection of the hypothesis of exogenous fertility. Copyright 2009 The Econometric Society.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 77 (2009)
Issue (Month): 3 (05)
Pages: 975-991

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Handle: RePEc:ecm:emetrp:v:77:y:2009:i:3:p:975-991

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  1. Rosenzweig, Mark R & Schultz, T Paul, 1985. "The Demand for and Supply of Births: Fertility and Its Life Cycle Consequences," American Economic Review, American Economic Association, vol. 75(5), pages 992-1015, December.
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Cited by:
  1. Adda, Jérôme & Dustmann, Christian & Stevens, Katrien, 2011. "The Career Costs of Children," Working Papers 2011-13, University of Sydney, School of Economics.
  2. Daniela Del Boca & Robert M. Sauer, 2006. "Life Cycle Employment and Fertility Across Institutional Environments," Carlo Alberto Notebooks 20, Collegio Carlo Alberto.
  3. Handel, Benjamin R. & Misra, Kanishka & Roberts, James W., 2013. "Robust firm pricing with panel data," Journal of Econometrics, Elsevier, vol. 174(2), pages 165-185.
  4. Sauer, Robert M., 2012. "Does It Pay for Women to Volunteer?," IZA Discussion Papers 6784, Institute for the Study of Labor (IZA).
  5. M. P. Keane & R. M. Sauer, 2008. "Implications of Classification Error for the Dynamics of Female Labor Supply," CHILD Working Papers wp13_08, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  6. Moshe Buchinsky, 2008. "Residential Location in Israel," 2008 Meeting Papers 931, Society for Economic Dynamics.
  7. Enrica Croda & Ekaterini Kyriazidou & Iannis Polycarpou, 2011. "Intertemporal Labor Force Participation of Married Women in Germany: A Panel Data Analysis," Working Papers 2011_17, Department of Economics, University of Venice "Ca' Foscari".
  8. Geert Mesters & Siem Jan Koopman, 2012. "Generalized Dynamic Panel Data Models with Random Effects for Cross-Section and Time," Tinbergen Institute Discussion Papers 12-009/4, Tinbergen Institute, revised 18 Mar 2014.

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