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Estimating Labor Force Joiners and Leavers Using a Heterogeneity Augmented Two-Tier Stochastic Frontier


  • Das, Tirthatanmoy

    () (Indian Institute of Management)

  • Polachek, Solomon

    () (Binghamton University, New York)


We derive a non-standard unit root serial correlation formulation for intertemporal adjustments in the labor force participation rate. This leads to a tractable three-error component model, which in contrast to other models embeds heterogeneity into the error structure. Unlike in the typical iid three-error component two-tier stochastic frontier model, our equation's error components are independent but not identically distributed. This leads to a complex nonlinear likelihood function requiring identification through a two-step estimation procedure, which we estimate using Current Population Survey (CPS) data. By transforming the basic equation linking labor force participation to the working age population, this paper devises a new method which can be used to identify labor market joiners and leavers. The method's advantage is its parsimonious data requirements, especially alleviating the need for survey based longitudinal data.

Suggested Citation

  • Das, Tirthatanmoy & Polachek, Solomon, 2017. "Estimating Labor Force Joiners and Leavers Using a Heterogeneity Augmented Two-Tier Stochastic Frontier," IZA Discussion Papers 10534, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10534

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    References listed on IDEAS

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    6. Solomon W. Polachek & Tirthatanmoy Das & Rewat Thamma-Apiroam, 2015. "Micro- and Macroeconomic Implications of Heterogeneity in the Production of Human Capital," Journal of Political Economy, University of Chicago Press, vol. 123(6), pages 1410-1455.
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    Cited by:

    1. repec:kap:jproda:v:49:y:2018:i:1:d:10.1007_s11123-017-0520-8 is not listed on IDEAS
    2. Christopher F. Parmeter, 2018. "Estimation of the two-tiered stochastic frontier model with the scaling property," Journal of Productivity Analysis, Springer, vol. 49(1), pages 37-47, February.

    More about this item


    two-tier stochastic frontier; identification; labor force dynamics;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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