A Multivariate Model of Labor Supply

Methodology for Estimation

by Giora Hanoch


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Considers methodological issues confronted in estimating a multivariate model of labor supply, incorporating a previous theoretical analysis of the multidimensional nature of time allocation. Specifically, the study treats econometrically the following six problems peculiar to labor supply, of which the last four are new: (1) the simultaneity bias in regression estimates of labor supply; (2) the participation selectivity bias; (3) the simultaneous joint determination of the supply of annual hours and annual weeks; (4) the discontinuity of supply at the reservation wage; (5) the corner solution in terms of full-year work; (6) the survey-week selectivity bias. The study first presents a basic general model; then transforms it into an operational model, which is applicable to the working sample; and finally presents an iterative strategy for estimating the model, preferring simpler and less costly methods. (See also R-1787.)

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