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

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Author Info
Bloemen, Hans G. (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)
Kapteyn, Arie

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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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Publisher Info
Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0019.

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Date of creation: 2003
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Handle: RePEc:dgr:vuarem:2003-19

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Related research
Keywords: labor supply; models;

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Find related papers by JEL classification:
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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  1. Kapteyn, Arie & Kooreman, Peter & van Soest, Arthur, 1990. "Quantity Rationing and Concavity in a Flexible Household Labor Supply Model," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 55-62, February. [Downloadable!] (restricted)
  2. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September. [Downloadable!] (restricted)
    Other versions:
  3. Blundell, Richard William & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," CEPR Discussion Papers 149, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Blomquist, Soren, 1995. "Restrictions in labor supply estimation: Is the MaCurdy critique correct?," Economics Letters, Elsevier, vol. 47(3-4), pages 229-235, March. [Downloadable!] (restricted)
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    Other versions:
  6. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-82, November. [Downloadable!] (restricted)
  7. Diewert, W. E. & Wales, T. J., 1995. "Flexible functional forms and tests of homogeneous separability," Journal of Econometrics, Elsevier, vol. 67(2), pages 259-302, June. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
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  10. 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)
  11. 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. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
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  15. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January. [Downloadable!] (restricted)
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  16. Vassilis A. Hajivassiliou & Daniel L. McFadden, 1998. "The Method of Simulated Scores for the Estimation of LDV Models," Econometrica, Econometric Society, vol. 66(4), pages 863-896, July.
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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. 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. [Downloadable!] (restricted)
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  20. Mroz, Thomas A, 1987. "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," Econometrica, Econometric Society, vol. 55(4), pages 765-99, July. [Downloadable!] (restricted)
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  21. Hausman, Jerry A., 1979. "The econometrics of labor supply on convex budget sets," Economics Letters, Elsevier, vol. 3(2), pages 171-174. [Downloadable!] (restricted)
  22. Macurdy, T. & Green, D. & Paarsch, H., 1990. "Assessing Empirical Approaches For Analyzing Taxes And Labor Supply," Papers e-90-11, Stanford - Hoover Institution.
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Cited by:
(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. John K. Dagsvik and Zhiyang Jia, 2008. "An Alternative Approach to Labor Supply Modeling. Emphasizing Job-type as Choice Variable," Discussion Papers 550, Research Department of Statistics Norway. [Downloadable!]
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