The labor supply response to (mismeasured but) predictable wage changes

Eric French

No WP-00-8, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Problems with measurement error have led many researchers to criticize panel data studies of intertemporal labor supply. In this study I address the measurement error problems explicitly. I estimate the properties of measurement error in the Panel Study of Income Dynamics Validation Study. I then use this information about measurement error to purge measurement error from the Panel Study of Income Dynamics. I show there exists a large transitory wage changes predictably disappear. When estimating the labor supply response to these predictable wage changes, I account for serially correlated measurement error and for measurement error that is correlated with true hours and wages. I find almost no correlation between hours worked and predictable wage changes. Therefore, failure to control for measurement error cannot explain the low estimated labor supply elasticities in other papers.

Keywords: Labor supply; Wages (search for similar items in EconPapers)
Date: 2000
New Economics Papers: this item is included in nep-lab and nep-ltv
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: The Labor Supply Response to (Mismeasured but) Predictable Wage Changes (2004)
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