The Hausman-MaCurdy Controversy - Why do results differ between studies?

Matias Eklöf and Hans Sacklén
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Hans Sacklén: FIEF, Postal: Wallingatan 38, 111 24 Stockholm, Sweden

No 1997:30, Working Paper Series from Uppsala University, Department of Economics

Abstract: The two perhaps most influential empirical labor supply studies carried out in the U.S. in recent years, Hausman (1981) and MaCurdy, Green & Paarsch (1990), report sharply contradicting labor supply estimates. In this paper we seek to uncover the driving forces behind the seemingly irreconcilable results. Our findings suggest that differences with respect to the estimated income and wage effects can be attributed to the use of differing nonlabor income and wage measures, respectively, in the two studies. Monte Carlo experiments suggest that the wage measure adopted by MaCurdy et al might cause a severely downward biased wage effect such that data falsely refute the basic notion of utility maximization.

Keywords: Labor supply; Slutsky condition; maximum likelihood estimation (search for similar items in EconPapers)
JEL-codes: J22 (search for similar items in EconPapers)
Pages: 42 pages
Date: 1997-12-04
New Economics Papers: this item is included in nep-pbe and nep-pub
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Published in Journal of Human Resources, 2000, pages 204-220.

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