Advanced Search
MyIDEAS: Login to save this paper or follow this series

Validating Structural Labor Supply Models

Contents:

Author Info

  • Löffler, Max
  • Peichl, Andreas
  • Siegloch, Sebastian

Abstract

Although discrete hours choice models have become the workhorse in labor supply analyses. Yet, they are often criticized for being a black box due to their numerous underlying modeling assumptions, with respect to, e.g., the functional form, unobserved error components or several exogeneity assumptions. In this paper, we open the black box and show how these assumptions affect the statistical fit of the models and, more importantly, the estimated outcomes, i.e., estimated labor supply elasticities. In total we estimate 2,219 different model specifications. Our results show that the specification of the utility function is not crucial for performance and predictions of the model. We find however that the estimates are extremely sensitive to the treatment of the wages a neglected dimension so far. We show that, e.g., the choice between predicting wages for the full sample instead of using predicted wages only for non-workers two methods frequently used increases labor supply elasticities by up to 100 percent. As a consequence, we propose a new estimation strategy which overcomes the highly restrictive but commonly made assumption of independence between wages and the labor supply decision. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/79819/1/VfS_2013_pid_441.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79819.

as in new window
Length:
Date of creation: 2013
Date of revision:
Handle: RePEc:zbw:vfsc13:79819

Contact details of provider:
Email:
Web page: http://www.socialpolitik.org/
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Aaberge, Rolf & Colombino, Ugo & Wennemo, Tom, 2006. "Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply," IZA Discussion Papers 1986, Institute for the Study of Labor (IZA).
  2. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "Evaluating In-Work Benefit Reform: The Working Families Tax Credit in the U.K," JCPR Working Papers, Northwestern University/University of Chicago Joint Center for Poverty Research 160, Northwestern University/University of Chicago Joint Center for Poverty Research.
  3. Richard Blundell & Andrew Shephard, 2012. "Employment, Hours of Work and the Optimal Taxation of Low-Income Families," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 481-510.
  4. John Dagsvik & Zhiyang Jia & Kristian Orsini & Guy Camp, 2011. "Subsidies on low-skilled workers’ social security contributions: the case of Belgium," Empirical Economics, Springer, Springer, vol. 40(3), pages 779-806, May.
  5. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  6. Lennart Flood & Jörgen Hansen & Roger Wahlberg, 2004. "Household Labor Supply and Welfare Participation in Sweden," Journal of Human Resources, University of Wisconsin Press, vol. 39(4).
  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. Hilary Hoynes, 1993. "Welfare Transfers in Two-Parent Families: Labor Supply and Welfare Participation Under AFDC-UP," NBER Working Papers 4407, National Bureau of Economic Research, Inc.
  9. Bargain, Olivier & Orsini, Kristian & Peichl, Andreas, 2012. "Comparing Labor Supply Elasticities in Europe and the US: New Results," IZA Discussion Papers 6735, Institute for the Study of Labor (IZA).
  10. repec:fth:stanho:e-90-11 is not listed on IDEAS
  11. Aaberge, Rolf & Colombino, Ugo & Strom, Steinar, 1999. "Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions, with Taxes and Quantity Constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(4), pages 403-22, July-Aug..
  12. M. Keane & R. Mofitt, 1995. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," Working Papers 95-4, Brown University, Department of Economics.
  13. Steinar Str�m & John K. Dagsvik, 2006. "Sectoral labour supply, choice restrictions and functional form," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(6), pages 803-826.
  14. George J. Borjas, 1980. "The Relationship between Wages and Weekly Hours of Work: The Role of Division Bias," Journal of Human Resources, University of Wisconsin Press, vol. 15(3), pages 409-423.
  15. Bloemen, H.G. & Kapteyn, A.J., 1993. "The estimation of utility consistent labor supply models by means of simulated scores," Discussion Paper, Tilburg University, Center for Economic Research 1993-67, Tilburg University, Center for Economic Research.
  16. Michiel Evers & Ruud Mooij & Daniel Vuuren, 2008. "The Wage Elasticity of Labour Supply: A Synthesis of Empirical Estimates," De Economist, Springer, Springer, vol. 156(1), pages 25-43, March.
  17. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 97(4), pages 635-59, December.
  18. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
  19. Peter Haan, 2006. "Much ado about nothing: conditional logit vs. random coefficient models for estimating labour supply elasticities," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(4), pages 251-256.
  20. 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.
  21. Euwals, Rob & van Soest, Arthur, 1999. "Desired and actual labour supply of unmarried men and women in the Netherlands," Labour Economics, Elsevier, Elsevier, vol. 6(1), pages 95-118, March.
  22. Lennart Flood & Nizamul Islam, 2005. "A Monte Carlo evaluation of discrete choice labour supply models," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(5), pages 263-266.
  23. Peichl, Andreas & Schneider, Hilmar & Siegloch, Sebastian, 2010. "Documentation IZAΨMOD: The IZA Policy SImulation MODel," IZA Discussion Papers 4865, Institute for the Study of Labor (IZA).
  24. Rolf Aaberge & Ugo Colombino & Steinar Strøm, 2004. "Do more equal slices shrink the cake? An empirical investigation of tax-transfer reform proposals in Italy," Journal of Population Economics, Springer, Springer, vol. 17(4), pages 767-785, December.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc13:79819. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.