Estimating the errors in hours of work and wage rates

by Arleen Leibowitz

Purchase Print Copy

 FormatList Price Price
Add to Cart Paperback15 pages $20.00 $16.00 20% Web Discount

Labor supply equations are often estimated by regressing hours worked on a wage measure which is itself the quotient of income and hours, leading to downward biases. The author shows that where both income and hours of work are measured with error, the downward bias remains. Using data collected for the RAND Health Insurance Study, this paper presents evidence that hours data are inherently variable, even when reporting error is low. Using data on 350 individuals' wage information for the preceding week and for a "usual week" in the preceding four months, a considerable negative bias is seen in the wage elasticity of both annual and weekly hours with respect to hourly wage, when data are derived from report week as compared with the "usual" week measures.

This report is part of the RAND Corporation Paper series. The paper was a product of the RAND Corporation from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.

Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit www.rand.org/about/principles.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.