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Small-sample bias in synthetic cohort models of labor supply

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Author Info
Paul J. Devereux (School of Economics and Geary Institute, University College Dublin, Ireland)

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Abstract

This paper investigates small-sample biases in synthetic cohort models (repeated cross-sectional data grouped at the cohort and year level) in the context of a female labor supply model. I use the Current Population Survey to compare estimates when group sizes are extremely large to those that arise from randomly drawing subsamples of observations from the large groups. I augment this approach with Monte Carlo analysis so as to precisely quantify biases and coverage rates. In this particular application, thousands of observations per group are required before small-sample issues can be ignored in estimation and sampling error leads to large downward biases in the estimated income elasticity. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.938
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File URL: http://qed.econ.queensu.ca:80/jae/2007-v22.4/
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 22 (2007)
Issue (Month): 4 ()
Pages: 839-848
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Handle: RePEc:jae:japmet:v:22:y:2007:i:4:p:839-848

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Altonji, Joseph G, 1986. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S176-S215, June. [Downloadable!] (restricted)
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  2. Angrist, Joshua D & Krueger, Alan B, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 979-1014, November. [Downloadable!] (restricted)
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  3. Paul J Devereux, 2006. "Small Sample Bias in Synthetic Cohort Models of Labor Supply," Working Papers 200606, School Of Economics, University College Dublin. [Downloadable!]
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  4. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-43, May. [Downloadable!] (restricted)
  5. Angrist, J D & Imbens, G W & Krueger, A B, 1999. "Jackknife Instrumental Variables Estimation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(1), pages 57-67, Jan.-Feb.. [Downloadable!]
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  6. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
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  7. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
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  8. Kooreman, Peter & Kapteyn, Arie, 1986. "Estimation of Rationed and Unrationed Household Labour Supply Functions Using Flexible Functional Forms," Economic Journal, Royal Economic Society, vol. 96(382), pages 398-412, June. [Downloadable!] (restricted)
  9. Robin, J.M. & Smith, R.J., 1995. "Tests of Rank," Cambridge Working Papers in Economics 9521, Faculty of Economics, University of Cambridge.
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    • Robin, Jean-Marc & Smith, Richard J., 2000. "Tests Of Rank," Econometric Theory, Cambridge University Press, vol. 16(02), pages 151-175, April. [Downloadable!]
  10. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 109-126. [Downloadable!] (restricted)
  11. Paul J. Devereux, 2004. "Changes in Relative Wages and Family Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 39(3). [Downloadable!] (restricted)
  12. Angrist, Joshua D., 1991. "Grouped-data estimation and testing in simple labor-supply models," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 243-266, February. [Downloadable!] (restricted)
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  13. Dean R. Hyslop, 2001. "Rising U.S. Earnings Inequality and Family Labor Supply: The Covariance Structure of Intrafamily Earnings," American Economic Review, American Economic Association, vol. 91(4), pages 755-777, September. [Downloadable!] (restricted)
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  17. Jerry A. Hausman & Paul Ruud, 1984. "Family Labor Supply With Taxes," NBER Working Papers 1271, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Buchinsky, Moshe, 1995. "Estimating the asymptotic covariance matrix for quantile regression models a Monte Carlo study," Journal of Econometrics, Elsevier, vol. 68(2), pages 303-338, August. [Downloadable!] (restricted)
  19. Devereux, Paul J., 2007. "Improved Errors-in-Variables Estimators for Grouped Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 278-287, July. [Downloadable!] (restricted)
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  20. Bekker, Paul A, 1994. "Alternative Approximations to the Distributions of Instrumental Variable Estimators," Econometrica, Econometric Society, vol. 62(3), pages 657-81, May. [Downloadable!] (restricted)
  21. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier. [Downloadable!] (restricted)
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  22. Propper, Carol & Rees, Hedley & Green, Katherine, 2001. "The Demand for Private Medical Insurance in the UK: A Cohort Analysis," Economic Journal, Royal Economic Society, vol. 111(471), pages C180-200, May. [Downloadable!] (restricted)
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  23. Verbeek, Marno & Nijman, Theo, 1992. "Can Cohort Data Be Treated as Genuine Panel Data?," Empirical Economics, Springer, vol. 17(1), pages 9-23.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Paul J. Devereux, 2007. "Small-sample bias in synthetic cohort models of labor supply," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(4), pages 839-848. [Downloadable!]
    Other versions:
  2. Daniel A. Ackerberg & Paul J. Devereux, 2008. "Improved Jive Estimators for Overidentified Linear Models with and without Heteroskedasticity," Working Papers 200817, School Of Economics, University College Dublin. [Downloadable!]
    Other versions:
  3. Paul J Devereux, 2006. "Improved Errors-in-Variables Estimators for Grouped Data," Working Papers 200602, School Of Economics, University College Dublin. [Downloadable!]
    Other versions:
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