State Dependence,Serial Correlation and Heterogeneity in Intertemporal Labor Force Participation of Married Women

A dynamic search framework is developed to analyze the intertemporal labor force participation behavior of married women, using longitudinal data to allow for a rich dynamic structure. The sensitivity to alternative distributional assumptions is evaluated using linear probability and probit models. The dynamic probit models are estimated using maximum simulated likelihood (MSL) estimation, to overcome the computational difficulties inherent in maximum likelihood estimation of models with nontrivial error structures. The results find that participation decisions are characterized by significant state dependence, unobserved heterogeneity, and negative serial correlation in the error component. The hypothesis that fertility decisions are exogenous to women's participation decisions is rejected when dynamics are ignored; however, there is no evidence against this hypothesis in dynamic model specifications. Women's participation response is stronger to permanent than current nonlabor income, reflecting unobserved taste factors.     

Fertility and Employment in Italy,France, and the UK

Abstract. According to the agenda for employment set by the European Union in 2000 for the following 10 years, the target for female employment was set at 60 per cent for the year 2010. Although Northern and most Continental countries have achieved this quantitative target, the Mediterranean countries are lagging behind. Labor market policies should be aimed to encourage women's participation and reduce the cost of working. However, the persistence of a negative relationship between participation and fertility in these countries implies that it is important to take fertility into account. We analyse a model of labor supply and fertility, using data from the European Community Household Panel (ECHP) for the period 1994–2000, merged with regional data describing the available labor market opportunities in the households’ environment.     

Modelling Job-Search Duration from the Italian Labour Force Data

ABSTRACT: Micro (and possibly panel) data from the Labour Force Surveys are a valuable source for analysing the labour supply behaviour. Among the information collected by the quarterly Italian Labour Force Survey conducted by ISTAT (the Italian national statistical agency), there are data on the duration of job-search. From a single survey, one can only know the duration of search up to the time of the interview. Nonetheless, by appropriately exploiting the longitudinal structure of the survey (the sample scheme is a rotated one, with a 50|X% overlapping of the sample units in two subsequent quarters) it is possible to measure, although imperfectly, some completed spells of job-search. In this paper, we try to model the duration of job-search for a sample of young unemployed. Considerable attention is devoted to the measure of duration of search, and to the evaluation of its accuracy. A one state proportional hazard model is specified and estimated, accounting also for unobserved heterogeneity. The model is estimated on a sample of young (15 to 29 years old) unemployed in January 1986 reinterviewed in April, in an Italian region (Lombardy). The major finding is a fairly clear evidence, both for males and females, of negative duration dependence, even after accounting for the unobserved heterogeneity that turns out to affect the female population.     

Dynamic Female Labor Supply

The increase in female employment and participation rates is one of the most dramatic changes to have taken place in the economy during the last century. However, while the employment rate of married women more than doubled during the last 50 years, that of unmarried women remained almost constant. To empirically analyze these trends, we estimate a female dynamic labor supply model using an extended version of Eckstein and Wolpin (1989) to compare the various explanations in the literature for the observed trends. This dynamic model provides a much better fit to the life‐cycle employment pattern than a static version of the model and a standard static reduced form model (Heckman (1979)). The main finding using the dynamic model is that the rise in education levels accounts for about 33 percent of the increase in female employment, and the rise in wages and narrowing of the gender wage gap account for another 20 percent, while about 40 percent remains unexplained by observed household characteristics. We show that this unexplained portion can be empirically attributed to cohort‐specific changes in preferences or the costs of child‐rearing and household maintenance. Finally, the decline in fertility and the increase in divorce rates account for only a small share of the increase in female employment rates.     

A Migration Study of Mother's Work,Welfare Participation,and Child Development

Abstract. This paper investigates how women's migration and labor supply behaviors respond to changes in welfare policies and labor market conditions, controlling for endogenous initial residence and unobserved heterogeneity. It also traces out how these responses influence educational inputs and child outcomes. The simulation results show that poor and low‐educated single women with children do change their residential locations in response to changes in welfare policies and labor market conditions. The magnitude of this response in the form of migration is rather modest. More importantly, however, such policy changes often have large and important impacts on particular at‐risk groups.     

A Dynamic Model for Binary Panel Data With Unobserved Heterogeneity Admitting a √n‐Consistent Conditional Estimator

A model for binary panel data is introduced which allows for state dependence and unobserved heterogeneity beyond the effect of available covariates. The model is of quadratic exponential type and its structure closely resembles that of the dynamic logit model. However, it has the advantage of being easily estimable via conditional likelihood with at least two observations (further to an initial observation) and even in the presence of time dummies among the regressors.     

The Transition to Work for Italian University Graduates

This study is focused on the transition from university to first job, taking into account the graduates’ characteristics and the effects relating to degree subject. A large data set from a survey on job opportunities for the 1998 Italian graduates is used. The paper uses a non‐parametric discrete‐time single‐risk model to study employment hazard. Alternative mixing distributions have also been used to account for unobserved heterogeneity. The results obtained indicate that there is evidence of positive duration dependence after a short initial period of negative duration dependence. In addition, a competing‐risk model has been estimated to characterize transitions out of unemployment.     

Heterogeneity and Unemployment Duration

ABSTRACT: Various unemployment duration models are estimated on a large Norwegian dataset covering labour market history 1.1.1989-31.12.1992 for all persons who became unemployed during October 1990. As many unemployed leave the unemployment register without going directly to a job, two alternative definitions of unemployment are used — register unemployment and joblessness. The problem of heterogeneity is addressed both by partitioning the individuals into four categories by previous unemployment history, and by including a random term in the job hazard. Observed as well as unobserved heterogeneity affects the estimates of expected duration to a great extent. When gamma-distributed unobserved heterogeneity is accounted for, the estimates of duration dependence become more positive relative to models where unobserved heterogeneity is ignored. Among persons who are entitled to unemployment benefit, the duration dependence appears to be significantly positive. Alternative specifications of the baseline hazard hardly affect estimates of the effects of the covariates on duration.     

Dynamic Effects of the Minimum Wage on Informality in Colombia

Informality is a common phenomenon in developing countries and is not uncommon in industrialized societies. Although persistent aggregate rates of informal employment for a certain period of time may be indicative of low rates of employment status change among individuals, more intensive studies regarding persistent individual informal employment are needed. We used a reduced‐form dynamic pseudo panel data model approach that accounted for unobserved heterogeneity and initial conditions to present empirical evidence of the extent of persistent informality in a developing country, where education is the primary force of mitigating permanent informality. Using data from Colombia, we also provide results on the complex effect of minimum wage levels on informality. An increase in the minimum wage resulted in increased informality and increased the persistence of informality. Our results may be a basis with which to discuss the persistence of informality in other developing countries.     

Inept or Badly Matched? — Effects of Educational Mismatch in the Labor Market

Negative wage effects of educational mismatch have become a stylized fact. Whether these are explained by differences in unobserved productivity or poor matching is still to be answered conclusively. In an empirical analysis based on data from the German Socio‐Economic Panel and the International Adult Literacy Survey, a broad econometric strategy is applied to solve the problem of unobserved heterogeneity and reveal the mechanism underlying wage differences between matched and mismatched workers. Results show that wage differentials can be explained by a poor matching in the labor market, rejecting the hypothesis that mismatched workers compensate for unobserved productivity differences.     

Looks and Labor: Do Attractive People Work More?

Using the German General Social Survey (ALLBUS) 2008, I investigate how looks affect an individual's labor supply decision. My results are, by and large, in line with predictions derived from the neoclassical model of labor supply. Applying regular probit, bivariate probit, Tobit and Heckman selection regression models, I find that good looks go hand in hand with higher employment probabilities and more hours of market work. Furthermore, physical attractiveness is positively associated with spousal income and spousal employment. Hence, beauty appears to affect labor supply decisions both directly and through the marriage market.     

Marginal employment for welfare recipients: stepping stone or obstacle?

Marginal employment (ME) is one of the largest forms of atypical employment in Germany. We analyse whether ME has a ‘stepping stone’ function for unemployed individuals, i.e., whether ME increases the subsequent probability of regular employment. We find differing treatment effects by unemployment duration. According to our results, ME increases the likelihood of regular employment within a 3‐year observation period only for those who take up ME several months after beginning to receive benefits. In contrast, for those starting ME within the first months of receiving benefits, there is no effect on the probability of regular employment. Although we took several measures to minimize the impact of unobserved heterogeneity, our results can only be interpreted as causal if the conditional independence assumption holds.     

Testing the Validity of the Sibling Sex Ratio Instrument

We test the validity of the sibling sex ratio instrument suggested by Angrist and Evans using the methods proposed by Kitagawa and Huber and Mellace. The sex ratio of the first two siblings is arguably randomly assigned and influences the probability of having a third child, which makes it a candidate instrument for fertility when estimating the effect of fertility on female labor supply. However, identification hinges on the random assignment of the instrument, an instrumental exclusion restriction, and the monotonicity of fertility in the instrument. We find that the instrumental variable tests of Kitagawa and Huber and Mellace do not point to a violation of these assumptions in the Angrist and Evans data (which can, however, not be ruled out even asymptotically as the tests cannot detect all possible violations).     

SOCIAL INTERACTIONS IN LABOR SUPPLY

Our research examines the effect of interdependence on estimation and interpretation of earnings/labor supply equations. We consider the cases of (1) a positive spillover from others' labor supplied and (2) a need for conformity with others' labor supplied. Qualitative and quantitative comparative statics results with a Stone‐Geary utility function demonstrate how spillover effects increase labor supply uniformly. Alternatively, conformity effects move labor supplied toward the mean of the reference group so that, in the limit, labor supply becomes perfectly inelastic at the reference group average. When there are unmodeled exogenous social interactions, conventional wage elasticities are still relatively well estimated, although structural parameters may not be. Omitting endogenous social interactions may seriously misrepresent the labor supply effects of policy, however. (JEL: D11, J22, Z13)     

Why is the Return to Training So High?

Abstract. Cross‐sectional results show that training increases wages by 5 per cent. This return is on a par with the return to 1 year of education. Considering that the average duration of training is very short, this result is strange and needs further examination. After leaving out the importance of measurement error, we control for accumulated stock of firm‐specific skills, unobserved heterogeneity in wage levels, heterogeneity in training returns, and heterogeneity in wage growth. By this we manage to reduce the return considerably. Unobserved heterogeneity in wage levels is the most important contributor to the ‘too high’ returns to training.     

A Dynamic Model of Welfare Reform

A dynamic structural model of labor supply, welfare participation, and food stamp participation is estimated using the 1992, 1993, and 1996 panels of the Survey of Income and Program Participation. Details of various policies including welfare time limits, work requirements, and Earned Income Tax Credit (EITC) are incorporated formally in the budget constraint. Policy simulations reveal that the economy accounts for half of the increase in the labor supply of female heads of family between 1992 and 1999. A time limit results in a larger efficiency gain than a work requirement or a direct reduction in welfare benefits. A reform package can lead to both a reduction in the government expenditure and an improvement in utility. The EITC expansion results in a substantial efficiency gain among individuals with the lowest expected wage. These individuals are almost unaffected by the economic expansion, but their income and utility increase significantly under the reform package.     

Generalized Instrumental Variable Models

This paper develops characterizations of identified sets of structures and structural features for complete and incomplete models involving continuous or discrete variables. Multiple values of unobserved variables can be associated with particular combinations of observed variables. This can arise when there are multiple sources of heterogeneity, censored or discrete endogenous variables, or inequality restrictions on functions of observed and unobserved variables. The models generalize the class of incomplete instrumental variable (IV) models in which unobserved variables are single‐valued functions of observed variables. Thus the models are referred to as generalized IV (GIV) models, but there are important cases in which instrumental variable restrictions play no significant role. Building on a definition of observational equivalence for incomplete models the development uses results from random set theory that guarantee that the characterizations deliver sharp bounds, thereby dispensing with the need for case‐by‐case proofs of sharpness. The use of random sets defined on the space of unobserved variables allows identification analysis under mean and quantile independence restrictions on the distributions of unobserved variables conditional on exogenous variables as well as under a full independence restriction. The results are used to develop sharp bounds on the distribution of valuations in an incomplete model of English auctions, improving on the pointwise bounds available until now. Application of many of the results of the paper requires no familiarity with random set theory.     

THE EFFECT OF JOINT CUSTODY ON FAMILY OUTCOMES

Since the 1970s almost all US states have introduced a form of joint custody after divorce. I analyze the causal effect of these custody law reforms on different family outcomes. My identification strategy exploits the different timing of reforms across the US states. Estimations based on state panel data suggest that the introduction of joint custody led to an increase in marriage rates, an increase in overall fertility (including a shift from nonmarital to marital fertility), and an increase in divorce rates for older couples. Accordingly, female labor market participation decreased. Further, male suicide rates and domestic violence fell in treated states. The empirical evidence is consistent with the hypothesis that joint custody increased the relative bargaining power of men within marriage.     

ESTIMATING THE STOCK‐FLOW MATCHING MODEL USING MICRO DATA

We estimate the stock‐flow matching model using micro‐level data from a well‐defined labor market. Using a dataset of complete labor‐market histories for both sides of the market, we estimate hazard functions for job‐seekers and vacancies. We find that the stock of new vacancies has a significant positive impact on the job‐seeker hazard, over and above that of the total stock of vacancies. There is an even stronger robust result for vacancy hazards. Thus we find evidence in favor of stock‐flow matching, even when controlling for unobserved search heterogeneity and stratifying into submarkets defined by location and occupation.     

Female Labor Supply,Human Capital,and Welfare Reform

We estimate a dynamic model of employment, human capital accumulation—including education, and savings for women in the United Kingdom, exploiting tax and benefit reforms, and use it to analyze the effects of welfare policy. We find substantial elasticities for labor supply and particularly for lone mothers. Returns to experience, which are important in determining the longer‐term effects of policy, increase with education, but experience mainly accumulates when in full‐time employment. Tax credits are welfare improving in the U.K., increase lone‐mother labor supply and marginally reduce educational attainment, but the employment effects do not extend beyond the period of eligibility. Marginal increases in tax credits improve welfare more than equally costly increases in income support or tax cuts.