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The estimation of utility consistent labor supply models by means of simulated scores

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  • Bloemen, H.G.
  • Kapteyn, A.J.

    (Tilburg University, Center for Economic Research)

Abstract

We consider a utility consistent static labor supply model with flexible preferences, a non-linear and possibly non-convex budget set, and a wage equation. Three stochastic error terms are introduced to represent respectively optimization and reporting errors, stochastic preferences, and heterogeneity in wages. Coherency conditions on parameters and supports of error distributions are imposed for all observations. The complexity of the model makes it impossible to write down the probability of participation. Hence simulation techniques have to be used in estimation. The properties of the estimation method adopted are first investigated by means of Monte Carlo. After that the model is estimated for Dutch data. We compare our approach with various simpler alternatives proposed in the literature. It turns out that both in the Monte Carlo experiments and for the reqal data the various estimation methods yield very different results. Furthermore estimates are sensitive to the exact specification of the budget constraint.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1993-67.

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Date of creation: 1993
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Handle: RePEc:dgr:kubcen:199367

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Web page: http://center.uvt.nl

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Keywords: Labour Supply;

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References

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  1. Cooper, Russel J & McLaren, Keith R, 1996. "A System of Demand Equations Satisfying Effectively Global Regularity Conditions," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 359-64, May.
  2. V A Hajivassiliou & DL McFadden, 1997. "The Method of Simulated Scores for the Estimation of LDV Models," STICERD - Econometrics Paper Series /1997/328, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
  4. Bloemen, H.G. & Kapteyn, A.J., 1992. "The joint estimation of a non-linear labour supply function and a wage equation using simulated response probabilities," Discussion Paper 1992-29, Tilburg University, Center for Economic Research.
  5. Kooreman, P. & Kapteyn, A.J., 1984. "Estimation of rationed and unrationed household labor supply functions using flexible functional forms," Research Memorandum 157, Tilburg University, Faculty of Economics and Business Administration.
  6. Soest, Arthur van & Kapteyn, Arie & Kooreman, Peter, 1993. "Coherency and regularity of demand systems with equality and inequality constraints," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 161-188.
  7. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
  8. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-89, August.
  9. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
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  11. C. Gourieroux & Jean-Jacques Laffont & A. Monfort, 1979. "Coherency Conditions In Simultaneous Linear Equation Models With Endogenous Switching Regimes," NBER Working Papers 0343, National Bureau of Economic Research, Inc.
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  13. Blundell, Richard William & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," CEPR Discussion Papers 149, C.E.P.R. Discussion Papers.
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  16. Blundell, Richard & Meghir, Costas, 1987. "Bivariate alternatives to the Tobit model," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 179-200.
  17. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-82, November.
  18. Thomas Mroz, . "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," University of Chicago - Population Research Center 84-8, Chicago - Population Research Center.
  19. Blomquist, Soren, 1996. "Estimation methods for male labor supply functions How to take account of nonlinear taxes," Journal of Econometrics, Elsevier, vol. 70(2), pages 383-405, February.
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  21. Euwals, Rob & van Soest, Arthur, 1999. "Desired and actual labour supply of unmarried men and women in the Netherlands," Labour Economics, Elsevier, vol. 6(1), pages 95-118, March.
  22. Vassilis A. Hajivassiliou, 1991. "Simulation Estimation Methods for Limited Dependent Variable Models," Cowles Foundation Discussion Papers 1007, Cowles Foundation for Research in Economics, Yale University.
  23. Daniel McFadden, 1987. "A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration," Working papers 464, Massachusetts Institute of Technology (MIT), Department of Economics.
  24. Robert K. Triest, 1990. "The Effect of Income Taxation on Labor Supply in the United States," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 491-516.
  25. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
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  29. repec:fth:stanho:e-90-11 is not listed on IDEAS
  30. Lewbel, Arthur, 1995. "Utility Functions and Global Regularity of Fractional Demand Systems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 943-61, November.
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Citations

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Cited by:
  1. Bloemen, Hans, 2010. "Income Taxation in an Empirical Collective Household Labour Supply Model with Discrete Hours," IZA Discussion Papers 4697, Institute for the Study of Labor (IZA).
  2. John K. Dagsvik & Zhiyang Jia, 2008. "An Alternative Approach to Labor Supply Modeling. Emphasizing Job-type as Choice Variable," Discussion Papers 550, Research Department of Statistics Norway.
  3. Löffler, Max & Peichl, Andreas & Siegloch, Sebastian, 2013. "Validating Structural Labor Supply Models," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79819, Verein für Socialpolitik / German Economic Association.
  4. repec:ese:emodwp:em5-10 is not listed on IDEAS
  5. Bloemen, Hans G., 1997. "Job search theory, labour supply and unemployment duration," Journal of Econometrics, Elsevier, vol. 79(2), pages 305-325, August.
  6. John K. Dagsvik & Zhiyang Jia & Tom Kornstad & Thor O. Thoresen, 2012. "Theoretical and practical arguments for modeling labor supply as a choice among latent jobs," Discussion Papers 692, Research Department of Statistics Norway.
  7. Thor O. Thoresen & Trine E. Vattø, 2013. "Validation of structural labor supply model by the elasticity of taxable income," Discussion Papers 738, Research Department of Statistics Norway.
  8. Shun-ichiro Bessho & Masayoshi Hayashi, 2011. "Estimating the Social Marginal Cost of Public Funds: A Micro-data Approach," CIRJE F-Series CIRJE-F-817, CIRJE, Faculty of Economics, University of Tokyo.
  9. Nicole Bosch & Miriam Gielen & Egbert Jongen & Mauro Mastrogiacomo (DNB & CPB), 2013. "A structural analysis of labour supply elasticities in the Netherlands," CPB Discussion Paper 235, CPB Netherlands Bureau for Economic Policy Analysis.
  10. John K. Dagsvik & Zhiyang Jia, 2012. "Labor supply as a discrete choice among latent jobs," Discussion Papers 709, Research Department of Statistics Norway.
  11. Loeffler, Max & Peichl, Andreas & Siegloch, Sebastian, 2014. "Structural Labor Supply Models and Wage Exogeneity," IZA Discussion Papers 8281, Institute for the Study of Labor (IZA).
  12. John Dagsvik & Zhiyang Jia & Kristian Orsini & Guy Camp, 2011. "Subsidies on low-skilled workers’ social security contributions: the case of Belgium," Empirical Economics, Springer, vol. 40(3), pages 779-806, May.
  13. Hans G. Bloemen, 2010. "Income Taxation in an Empirical Collective Household Labour Supply Model with Discrete Hours," Tinbergen Institute Discussion Papers 10-010/3, Tinbergen Institute.

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