Estimating Labor Supply Response: A Sensitivity Analysis
Jan 1, 1973
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Summarizes the major results of R-1372, Estimating Labor Supply Responses: A Sensitivity Analysis, using several competing methodologies to analyze the traditional labor supply model. A step-by-step exploration of alternative labor supply estimating equations attempts to identify the independent (marginal) effect of each change in the form of these equations. Analysis is restricted to married white male family heads of prime labor force age (25 to 54), and uses data from the Survey of Economic Opportunity. Results indicate that labor supply parameters estimated with cross-sectional data are highly dependent on the assumptions that researchers must make in constructing wage and asset variables, specifying the labor supply equation, and choosing the sample. Of special importance is the inclusion or exclusion of nonworkers in the sample, and of education in the equation. Until a firmer basis exists for resolving important methodological issues, only limited confidence can be placed in labor supply estimates based on nonexperimental data. (For publication in Review of Economics and Statistics.)
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