Working Paper: NBER ID: w9429
Authors: Bradley T. Heim; Bruce D. Meyer
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.
Keywords: No keywords provided
JEL Codes: D12; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Omitted work costs (J32) | Misrepresentation of preferences (D91) |
| Presence of work costs (J32) | Distortion of perceived shape of preferences (D11) |
| Work costs (J30) | Impact on policy-relevant calculations (C54) |