Part II SecondGeneration 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

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1) Introduction

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

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Variables

• WHRS...labor supply.. hours worked per year in
  1975
• WA..age
• WE...education in years
• WW..wage.hourly wage rate
• KL6number 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(WA2)/100
• AX.labor market experience in years
• CIT.dummy variable, 1 if live in large city

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2) Wage equationLn(wage)?0?1WA?2(WA)2?3WE?4A
X?5CIT
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2) Wage equationLn(wage)?0?1WA?2(WA)2?3WE?4A
X
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Wages of workers vs. non-workers
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3) Analysis of labor force participation
decision OLS
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3) Analysis of labor force participation
decision OLS
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Problem with OLSvalues of LFP outside the range
0,1
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3) Analysis of labor force participation
decision PROBIT
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3) Analysis of labor force participation
decision PROBITpredicted values probability
to work
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3) Analysis of labor force participation
decision PROBITMarginal effects change in
probability to work due to a marginal increase in
explanatory variables
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3) Analysis of labor force participation
decision LOGIT
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LOGIT marginal effects
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4) Comparing conditional OLS and Tobit estimates
of labor supply

• Avg.hours(US)ltAvg.hours(CZ)
• Higher corr(wage,edu) in the US (see next slides)

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OLS for working women
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OLS for the whole sample (constructed wages)
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TOBIT (censored point 0)
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5) Heckman two-stage method
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5) Heckman two-stage method