Work Costs and Nonconvex Preferences in the Estimation of Labor Supply Models

Bradley T. Heim and Bruce Meyer

No 9429, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We first critique the manner in which work costs have been introduced into labor supply estimation, and note the difficulty of incorporating a realistic rendering of the costs of work. We then show that, if work costs are not accounted for in the budget and time constraints in a structural labor supply model, they will be subsumed into the data generating preferences. We show that even if underlying preferences over consumption and leisure are convex, the presence of unobservable work costs can make these preferences appear nonconvex. Absent strong functional form assumptions, these work costs are not identified in data commonly used for labor supply estimation. However, we show that even if work costs cannot be separately identified, under plausible conditions, policy relevant calculations such as estimates of the effect of tax changes on labor supply and deadweight loss calculations, are not affected by the fact that estimated preferences incorporate work costs.

JEL-codes: D12 J22 (search for similar items in EconPapers)
Date: 2003-01
New Economics Papers: this item is included in nep-lab and nep-mic
Note: LS PE
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Citations: View citations in EconPapers (17)

Published as Heim, Bradley T. and Bruce D. Meyer. "Work Costs And Nonconvex Preferences In The Estimation Of Labor Supply Models," Journal of Public Economics, 2004, v88(11,Sep), 2323-2338.

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Journal Article: Work costs and nonconvex preferences in the estimation of labor supply models (2004)
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