Empirical Economics

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

A Monte Carlo evaluation of labor supply models

  • Peter Ericson
  • Lennart Flood
Article

Abstract

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 

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Copyright information

© Physica-Verlag 1997

Authors and Affiliations

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

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