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The Hausman-MaCurdy Controversy - Why do results differ between studies?

  • Eklöf, Matias

    ()

    (Department of Economics)

  • Sacklén, Hans

    (FIEF)

The two perhaps most influential empirical labor supply studies carried out in the U.S. in recent years, Hausman (1981) and MaCurdy, Green & Paarsch (1990), report sharply contradicting labor supply estimates. In this paper we seek to uncover the driving forces behind the seemingly irreconcilable results. Our findings suggest that differences with respect to the estimated income and wage effects can be attributed to the use of differing nonlabor income and wage measures, respectively, in the two studies. Monte Carlo experiments suggest that the wage measure adopted by MaCurdy et al might cause a severely downward biased wage effect such that data falsely refute the basic notion of utility maximization.

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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 1997:30.

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Length: 42 pages
Date of creation: 04 Dec 1997
Date of revision:
Publication status: Published in Journal of Human Resources, 2000, pages 204-220.
Handle: RePEc:hhs:uunewp:1997_030
Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
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  1. 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.
  2. Hausman, Jerry A., 1985. "Taxes and labor supply," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 4, pages 213-263 Elsevier.
  3. Aaron, Henry J., 2001. "Handbook of Health Economics," Journal of Health Economics, Elsevier, vol. 20(5), pages 847-854, September.
  4. Blomquist, N.S., 1992. "Estimation Methods for Male Labor Supply Functions: How to take Account to Taxes," Papers 1992-7, Uppsala - Working Paper Series.
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