Labor supply models: unobserved heterogeneity, nonparticipation and dynamics

This chapter is concerned with the identification and estimation of models of labor supply. The focus is on the key issues that arise from unobserved heterogeneity, nonparticipation and dynamics. We examine the simple ‘static’ labor supply model with proportional taxes and highlight the problems surrounding nonparticipation and missing wages. The difference in differences approach to estimation and identification is developed within the context of the labour supply model. We also consider the impact of incorporating nonlinear taxation and welfare programme participation. Family labor supply is looked at from botht e unitary and collective persepctives. Finally we consider intertemporal models focusing on the difficulties that arise with participation and heterogeneity

Labour supply: a review of alternative approaches

This chapter surveys existing approaches to modeling labor supply and identifies important gaps in the literature that could be addressed in future research. The discussion begins with a look at recent policy reforms and labor market facts that motivate the study of labor supply. The analysis then presents a unifying framework that allows alternative empirical formulations of the labor supply model to be compared and their resulting elasticities to be interpreted. This is followed by critical reviews of alternative approaches to labor-supply modeling. The first review assesses the difference in-differences approach and its relationship to natural experiments. The second analyzes estimation with non-linear budget constraints and welfare-program participation. The third appraises developments of family labor-supply models including both the standard unitary and collective labor-supply formulations. The fourth briefly explores dynamic extensions of the labor supply model, characterizing how participation decisions, learning-by-doing, human capital accumulation and habit formation affect the analysis of the lifecycle model. At the end of each of the four broad reviews, we summarize a selection of the recent empirical findings. The concluding section asks whether the developments reviewed in this chapter place us in a better position to answer the policy-reform questions and to interpret the trends in participation and hours with which we began this review. q1999 Elsevier Science B.V. All rights reserved.

New Methods for Estimating Labor Supply Functions: A Survey

This paper surveys new methods for estimatifg labor supply functions. A unified framework of analysis is presented. All recent models of labor supply are special cases of a general index function model developed for the analysis o dummy endogenous variables.