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Wages and Hours: Estimating Vector Autoregressions with Panel Data

Author

Listed:
  • Douglas Holtz-Eakin

    (Columbia University)

  • Whitney Newey

    (Princeton University)

  • Harvey S. Rosen

    (Princeton University)

Abstract

This paper considers estimation and testing of vector autoregression coefficients in panel data, and uses the techniques to analyze the dynamic properties of wages and hours among American males. The model allows for non- stationary individual effects, and is estimated by applying instrumental variables to the quasi-differenced autoregressive equations. Particular attention is paid to specifying lag lengths and forming convenient test statistics. The empirical results suggest that the wage equation contains at most a single lag of hours and wages, and that one cannot reject the hypothesis that lagged hours may be excluded from the wage equation. Our results also show that lagged hours is important in the hours equation, which is consistent with alternatives to the simple labor supply model that allow for costly hours adjustment or preferences that are not time separable.

Suggested Citation

  • Douglas Holtz-Eakin & Whitney Newey & Harvey S. Rosen, 1987. "Wages and Hours: Estimating Vector Autoregressions with Panel Data," Working Papers 602, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:222
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    Citations

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    Cited by:

    1. Card, David, 1990. "Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts," American Economic Review, American Economic Association, vol. 80(4), pages 669-688, September.

    More about this item

    Keywords

    labor supply; vector autoregression; panel data;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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