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Part II Second-Generation Studies of Labor Supply

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.

nicholas-schneider
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Part II Second-Generation Studies of Labor Supply

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  1. 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

  2. 1) Introduction • Major shortcoming of first-generation studies of labor supply: neglecting the selectivity bias (focus on working cohort only) • Data: US, 1975, women

  3. 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

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

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

  6. Wages of workers vs. non-workers

  7. 3) Analysis of labor force participation decision: OLS

  8. 3) Analysis of labor force participation decision: OLS

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

  10. 3) Analysis of labor force participation decision: PROBIT

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

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

  13. 3) Analysis of labor force participation decision: LOGIT

  14. LOGIT marginal effects

  15. 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)

  16. OLS for working women

  17. OLS for the whole sample (constructed wages)

  18. TOBIT (censored point = 0)

  19. 5) Heckman two-stage method

  20. 5) Heckman two-stage method

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