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

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  • Keane, Michael P.

    ()
    (University of Technology, Sydney)

  • Sauer, Robert M.

    ()
    (Royal Holloway, University of London)

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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Bibliographic Info

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
Date of revision:
Publication status: published in: Econometrica, 2009, 77(3), 975-991
Handle: RePEc:iza:izadps:dp2332

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

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References

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  1. Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
  2. Richard B. Freeman, 1983. "Longitudinal Analyses of the Effects of Trade Unions," NBER Working Papers 1207, National Bureau of Economic Research, Inc.
  3. 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.
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  8. 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, Econometric Society, vol. 55(4), pages 765-99, July.
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  14. Keane, Michael P, 1994. "A Computationally Practical Simulation Estimator for Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 62(1), pages 95-116, January.
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Citations

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Cited by:
  1. Adda, Jérôme & Dustmann, Christian & Stevens, Katrien, 2011. "The Career Costs of Children," IZA Discussion Papers 6201, Institute for the Study of Labor (IZA).
  2. 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".
  3. M. P. Keane & R. M. Sauer, 2008. "Implications of Classification Error for the Dynamics of Female Labor Supply," CHILD Working Papers, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY wp13_08, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  4. Del Boca, Daniela & Sauer, Robert M., 2006. "Life Cycle Employment and Fertility Across Institutional Environments," IZA Discussion Papers 2285, Institute for the Study of Labor (IZA).
  5. Handel, Benjamin R. & Misra, Kanishka & Roberts, James W., 2013. "Robust firm pricing with panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 174(2), pages 165-185.
  6. Sauer, Robert M., 2012. "Does It Pay for Women to Volunteer?," IZA Discussion Papers 6784, Institute for the Study of Labor (IZA).
  7. 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.
  8. Moshe Buchinsky, 2008. "Residential Location in Israel," 2008 Meeting Papers 931, Society for Economic Dynamics.

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