Empirical Economics

, Volume 22, Issue 3, pp 431–460 | Cite as

A Monte Carlo evaluation of labor supply models

  • Peter Ericson
  • Lennart Flood


In the area of labor supply and taxes advanced microeconometric methods have been developed in order to measure wage and income elasticities. Large variations in estimated elasticities have previously been reported in the literature. The purpose of the present study is to assess the sources for these discrepancies, and propose a robust estimator. According to our findings the commonly used maximum-likelihood estimator is sensitive to measurement errors in those variables that are needed in order to construct the individuals' budget sets. An iterative least squares estimator is preferred in small samples under several forms of specification and measurement errors.

Key Words

Labor supply Monte Carlo simulation 

JEL Classification System-Numbers

C15 J22 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Amemiya T (1985) Advanced econometrics. Blackwell Publishers, OxfordGoogle Scholar
  2. Andersson P, Flood RL, Hansen J (1993) Measurement of variables in the Study of Labor Supply. A comparison and evaluation of alternative methods. Working paper Department of Economics, University of Gothenburg, Presented at the symposium Fiscal Incentives and Labor Supply in the Nordic Countries, Uppsala April 1–2 1993Google Scholar
  3. Blomquist NS (1983) The effect of income on male labor supply in Sweden. Journal of Public Economics 22:169–97Google Scholar
  4. Blomquist NS (1989) Beskattningens effekter pa arbetsutbudet. SOU 1989:33Google Scholar
  5. Blomquist NS (1996) Estimation methods for male labor supply in functions: How to take account of taxes. Journal of Econometrics 70:383–405Google Scholar
  6. Burtless G, Hausman J (1978) The effect of taxes on labor supply. Journal of Political Economy 86:1103–30Google Scholar
  7. Flood LR, MaCurdy T (1993) Work disincentive effects of taxes: An empirical analysis of Swedish men. Carnegie-Rochester Conference Series on Public PolicyGoogle Scholar
  8. Hall R (1973) Wages, income and hours of work in U.S. labor force. In: Cain G, Watts H (eds) Income maintenance and labor supplyGoogle Scholar
  9. Hausman J (1981) Labor supply. In: Aaron H, Pechman J (eds) How taxes affect economic behavior, Brookings, Washington D.C.Google Scholar
  10. Hausman J (1985) Taxes and labor supply. In: Auerbach AJ, Feldtstein M (eds) Handbook of public economics, North HollandGoogle Scholar
  11. Killingsworth MR (1983) Labor supply. University Press, CambridgeGoogle Scholar
  12. Klevmarken NA (1986) Household market and nonmarket activities. The first year of a Swedish panel study. Department of Economics, Göteborg University, Reprint Series No 23Google Scholar
  13. Klevmarken NA, Olovsson P (1993) Household market and nonmarket activities: Procedures and codes 1984–1991. Almquist & Wiksell International, StockholmGoogle Scholar
  14. MaCurdy T, Green D, Paarsch H (1990) Assessing empirical approaches for analyzing taxes and labor supply. Journal of Human Resources 25:415–90Google Scholar
  15. Moffitt R (1986) The econometrics of piecewise-linear budget constraints: A survey and exposition of the maximum likelihood method. Journal of Business and Economic Statistics 4:317–27Google Scholar
  16. Mroz T (1987) The sensitivity of an empirical model of married women's hours of work to economical and statistical assumptions. Econometrica 55, 4:765–99Google Scholar
  17. Nakamura A, Nakamura N (1981) A comparison of the labor force behavior of married women in the United States and Canada, with special attantion to the impact of income taxes. Econometrica 49, 2:451–89Google Scholar
  18. Pencavel J (1986) Labor supply of men. In: Aschenfelter O, Layard R (ed) Handbook of labor economics, North HollandGoogle Scholar
  19. Smith N (1992) A panel of labor supply and taxes in Denmark. Working paper, Institute of Economics, University of AarhusGoogle Scholar
  20. Triest RK (1992) The robustness of alternative estimators for models with piecewise linear budget constraints: Evidence from Monte Carlo simulations, Working Paper, University of CaliforniaGoogle Scholar

Copyright information

© Physica-Verlag 1997

Authors and Affiliations

  • Peter Ericson
    • 1
  • Lennart Flood
    • 1
  1. 1.Department of EconomicsGöteborg UniversityGöteborgSweden

Personalised recommendations