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

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Author Info
Michael P. Keane () (University of Technology Sydney and Arizona State University)
Robert M. Sauer () (University of Southampton and IZA Bonn)

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Abstract

Two key issues in the literature on female labor supply are: (1) if persistence in employment status is due to unobserved heterogeneity or state dependence, and (2) if fertility is exogenous to labor supply. Until recently, the consensus was that unobserved heterogeneity is very important, and fertility is endogenous. But 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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2332.

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Length: 43 pages
Date of creation: Sep 2006
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Handle: RePEc:iza:izadps:dp2332

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Related research
Keywords: female labor supply fertility discrete choice classification error simulated maximum likelihood

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Find related papers by JEL classification:
J2 - Labor and Demographic Economics - - Demand and Supply of Labor
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
D1 - Microeconomics - - Household Behavior

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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.:
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  3. Eckstein, Zvi & Wolpin, Kenneth I, 1989. "Dynamic Labour Force Participation of Married Women and Endogenous Work Experience," Review of Economic Studies, Blackwell Publishing, vol. 56(3), pages 375-90, July.
  4. Michael P. Keane & Kenneth I. Wolpin, 2006. "The Role of Labor and Marriage Markets, Preference Heterogeneity and the Welfare System in the Life Cycle Decisions of Black, Hispanic and White Women," PIER Working Paper Archive 06-004, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
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  7. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54. [Downloadable!]
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  8. Dean R. Hyslop, 1999. "State Dependence, Serial Correlation and Heterogeneity in Intertemporal Labor Force Participation of Married Women," Econometrica, Econometric Society, vol. 67(6), pages 1255-1294, November.
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  14. Hotz, V Joseph & Miller, Robert A, 1988. "An Empirical Analysis of Life Cycle Fertility and Female Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 91-118, January. [Downloadable!] (restricted)
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  17. Nakamura, Alice & Nakamura, Masao, 1985. "Dynamic models of the labor force behavior of married women which can be estimated using limited amounts of past information," Journal of Econometrics, Elsevier, vol. 27(3), pages 273-298, March. [Downloadable!] (restricted)
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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. Daniela Del Boca & Robert M. Sauer, 2006. "Life Cycle Employment and Fertility Across Institutional Environments," IZA Discussion Papers 2285, Institute for the Study of Labor (IZA). [Downloadable!]
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