Testing labour supply and hours constraints.

Abstract

This paper provides empirical evidence on the assumption that individuals freely decide the number of hours they work at a given wage, using US data on prime age males from the National Longitudinal Survey of Youth. Two types of individuals are considered: those who change job between two consecutive periods and those who do not. We estimate an endogenous switching labour supply equation consistent with a life-cycle model under uncertainty. In this context the endogeneity of movements, ignored in previous analysis, proves to be crucial to get consistent estimates. The results confirm that individuals are constrained in the number of hours they work on a given job and that the intertemporal substitution elasticities are usually upward biased when ignoring the possibility of some groups of individuals being off their labour supply curves.Job changes; Labour supply; Wage elasticties; Hours constrainsts;