The Sensitivity of Labor Supply Parameter Estimates to Unobserved Individual Effects: Fixed and Random Effects Estimates in a Nonlinear Model Using Panel Data

Author
Keywords
Abstract

A life cycle model of labor supply predicts the presence of an
unobserved individual effect (log marginal utility of wealth) in the labor
supply equation which is correlated with the observed explanatory variables,
leading to an omitted variables bias in the cross section. We examine the
sensitivity of parameter estimates to the presence of unobserved individual
effects, using both fixed- and random effect Tobit models. The estimated
effects of children are biased away from zero in the cross section. The
estimated intertemporal substitution elasticity ranges from 1.1 to 1.7. The
results are similar for both fixed and random effects models, and for models
using log leisure and hours of work as the dependent variable.

Year of Publication
1986
Number
210
Date Published
08/1986
Publication Language
eng
Citation Key
Journal of Labor Economics, Vol. 6, No. 3, July., 1988
URL
Working Papers