Classification Error in Dynamic Discrete Choice Models: Implications for Female Labor Supply Behavior

Michael P Keane () and Robert M. Sauer ()

No 2332, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: Two key issues in the literature on female labor supply are: (1) if persistence in employment status is due to unobserved heterogeneity or state dependence, and (2) if fertility is exogenous to labor supply. Until recently, the consensus was that unobserved heterogeneity is very important, and fertility is endogenous. But Hyslop (1999) challenged this. Using a dynamic panel probit model of female labor supply including heterogeneity and state dependence, he found that adding autoregressive errors led to a substantial diminution in the importance of heterogeneity. This, in turn, meant he could not reject that fertility is exogenous. Here, we extend Hyslop (1999) to allow classification error in employment status, using an estimation procedure developed by Keane and Wolpin (2001) and Keane and Sauer (2005). We find that a fairly small amount of classification error is enough to overturn Hyslop’s conclusions, leading to overwhelming rejection of the hypothesis of exogenous fertility.

Keywords: female labor supply; fertility; discrete choice; classification error; simulated maximum likelihood (search for similar items in EconPapers)
JEL-codes: J2 J6 C3 D1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm
Date: 2006-09
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Journal Article: Classification Error in Dynamic Discrete Choice Models: Implications for Female Labor Supply Behavior (2009)
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