Structural labor supply models and wage exogeneity


Löffler, Max ; Peichl, Andreas ; Siegloch, Sebastian


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URL: https://madoc.bib.uni-mannheim.de/36901
URN: urn:nbn:de:bsz:180-madoc-369019
Document Type: Working paper
Year of publication: 2014
The title of a journal, publication series: ZEW Discussion Papers
Volume: 14-040
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
School of Law and Economics > VWL, Wirtschaftspolitik u. Politische Ökonomie (Juniorprofessur) (Siegloch 2014-2018)
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C25 , C52 , H31 , J22,
Keywords (English): Labor supply , elasticity , random utility models , wages
Abstract: There is still considerable dispute about the magnitude of labor supply elasticities. While differences in micro and macro estimates are recently attributed to frictions and adjustment costs, we show that relatively low labor supply elasticities derived from microeconometric models can also be explained by modeling assumptions with respect to wages. Specifically, we estimate 3,456 structural labor supply models each representing a plausible combination of frequently made choices. While most model assumptions do not systematically affect labor supply elasticities, our analysis shows that the results are very sensitive to the treatment of wages. In particular, the often-made but highly restrictive independence assumption between preferences and wages is key. To overcome this restriction, we propose a flexible estimation strategy that nests commonly used models. We show that loosening the exogeneity assumption leads to labor supply elasticities that are much higher.

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Löffler, Max ; Peichl, Andreas ; Siegloch, Sebastian (2014) Structural labor supply models and wage exogeneity. Open Access ZEW Discussion Papers Mannheim 14-040 [Working paper]
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