Part ii second generation studies of labor supply
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Part II Second-Generation Studies of Labor Supply. 1) Introduction 2) Wage equation 3) Analysis of labor force participation decision 4) Comparing conditional OLS and Tobit estimates of labor supply 5) Heckman two-stage method. 1) Introduction.

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Part II Second-Generation Studies of Labor Supply

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Part IISecond-Generation Studies of Labor Supply

  • 1) Introduction

  • 2) Wage equation

  • 3) Analysis of labor force participation decision

  • 4) Comparing conditional OLS and Tobit estimates of labor supply

  • 5) Heckman two-stage method


1) Introduction

  • Major shortcoming of first-generation studies of labor supply: neglecting the selectivity bias (focus on working cohort only)

  • Data: US, 1975, women


Variables

  • WHRS…...labor supply….. hours worked per year in 1975

  • WA………..age

  • WE………...education in years

  • WW………..wage………….hourly wage rate

  • KL6………number of children less than 6 years old

  • K618 ……..number of children more than 6 years old and less than 18 years old

  • LWW = ln(WW)

  • LWHRS = ln(WHRS)

  • WA2=(WA^2)/100

  • AX……….labor market experience in years

  • CIT……….dummy variable, =1 if live in large city


2) Wage equationLn(wage)=0+1WA+2(WA)2+3WE+4AX+5CIT


2) Wage equationLn(wage)=0+1WA+2(WA)2+3WE+4AX


Wages of workers vs. non-workers


3) Analysis of labor force participation decision: OLS


3) Analysis of labor force participation decision: OLS


Problem with OLS:values of LFP outside the range [0,1]


3) Analysis of labor force participation decision: PROBIT


3) Analysis of labor force participation decision: PROBITpredicted values = probability to work


3) Analysis of labor force participation decision: PROBITMarginal effects = change in probability to work due to a marginal increase in explanatory variables


3) Analysis of labor force participation decision: LOGIT


LOGIT marginal effects


4) Comparing conditional OLS and Tobit estimates of labor supply

  • Avg.hours(US)<Avg.hours(CZ)

  • Higher corr(wage,edu) in the US (see next slides)


OLS for working women


OLS for the whole sample (constructed wages)


TOBIT (censored point = 0)


5) Heckman two-stage method


5) Heckman two-stage method


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