Tied Wage-Hours Offers and the Endogeneity of Wages
In the standard model of labor supply, each worker is a price taker,where the relevant price is an hourly wage rate which is fixed in the short run, and which does not depend upon the number of hours supplied. With this basic assumption, the wage can be regarded as exogenous for the purpose of estimating a labor supply function. This paper proposes and implements a pair of tests for the exogeneity of wages in a longitudinal labor supply model, and for the particular failure of exogeneity associated with jobs that offer wage-hour packages.The first test is very simple -- it amounts to a test of whether hours Granger -- cause wages at the individual level. The second test involves a simultaneous estimation of labor supply and wage offer equations. Both tests indicate that the offered wage is related to hours worked, though the offer locus is, for this sample, very flat. The principal conclusion is that labor supply equations cannot properly be estimated in isolation from the process generating wages, even when long time series are available on a sample of individuals.
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| Length: | |
| Date of creation: | Aug 1984 |
| Publication status: | published as Review of Economics and Statistics, Vol. 67, no. 3 (1985): 405-410. |
| Handle: | RePEc:nbr:nberwo:1431 |
| Note: | LS |
| Contact details of provider: | Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Web page: http://www.nber.org Email: More information through EDIRC
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References listed on IDEAS
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- Sargent, Thomas J, 1976. "A Classical Macroeconometric Model for the United States," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 207-237, April.
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- Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
- Rosen, Harvey S, 1976. "Taxes in a Labor Supply Model with Joint Wage-Hours Determination," Econometrica, Econometric Society, vol. 44(3), pages 485-507, May.
- Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-552, September.
- Amemiya, Takeshi, 1977. "The Maximum Likelihood and the Nonlinear Three-Stage Least Squares Estimator in the General Nonlinear Simultaneous Equation Model," Econometrica, Econometric Society, vol. 45(4), pages 955-968, May. Full references (including those not matched with items on IDEAS)
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