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A Goodness of Fit Test of Dual Labor Market Theory

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  • William T. Dickens
  • Kevin Lang

Abstract

We subject our dual labor market model to a goodness of test fit and compare the results with those obtained using a single equation model with a complex error structure. The dual labor market does an excellent job of predicting the wage distribution except for failing to explain bunching at $7.50 and $10.00 per hour. The null hypothesis that the model is correct cannot be rejected at the .05 level. In contrast, the wage distribution predicted by the single labor market model differs significantly from the observed distribution.

Suggested Citation

  • William T. Dickens & Kevin Lang, 1987. "A Goodness of Fit Test of Dual Labor Market Theory," NBER Working Papers 2350, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2350 Note: LS
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    References listed on IDEAS

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    1. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215-215.
    2. Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, pages 1-22.
    3. Kotlikoff, Laurence J. & Smith, Daniel E., 1984. "Pensions in the American Economy," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226451466.
    4. Shoven, John B. & Whalley, John, 1972. "A general equilibrium calculation of the effects of differential taxation of income from capital in the U.S," Journal of Public Economics, Elsevier, pages 281-321.
    5. Feldstein, Martin S & Slemrod, Joel, 1980. "Personal Taxation, Portfolio Choice, and the Effect of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 854-866, October.
    6. Martin Feldstein, 1983. "Behavioral Simulation Methods in Tax Policy Analysis," NBER Books, National Bureau of Economic Research, Inc, number feld83-2, January.
    7. Joel Slemrod, 1984. "A General Equilibrium Model of Taxation That Uses Micro-Unit Data: Withan Application to the Impact of Instituting a Flat-Rate Income Tax," NBER Working Papers 1461, National Bureau of Economic Research, Inc.
    8. Shoven, John B. & Whalley, John, 1972. "A general equilibrium calculation of the effects of differential taxation of income from capital in the U.S," Journal of Public Economics, Elsevier, pages 281-321.
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    Cited by:

    1. Pieter Serneels, 2002. "The added worked effect and intra household aspects of unemployment," CSAE Working Paper Series 2002-14, Centre for the Study of African Economies, University of Oxford.
    2. William T. Dickens & Kevin Lang, 1992. "Labor Market Segmentation Theory: Reconsidering the Evidence," NBER Working Papers 4087, National Bureau of Economic Research, Inc.
    3. Basch, Michael & Paredes-Molina, Ricardo D., 1996. "Are there dual labor markets in Chile?: empirical evidence," Journal of Development Economics, Elsevier, pages 297-312.

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