Semiparametric three step estimation methods in labor supply models

Abstract

The aim of this paper is to provide an alternative way of specification and estimation of a labor supply model. The proposed estimation procedure can be included in the so called predicted wage methods and its main interest is twofold .. First, under standard assumptions in studies of labor supply, the estimator based on predicted wages is shown to be consistent and asymptotically normal. Moreover, we propose also a consistent estimator of the asymptotic covariance matrix. In the main part of the paper we introduce a semiparametric estimator based on marginal integration techniques that allows for nonlinear relationships between the labor supply variable and its covariates. We show that also the wage equation could be modeled nonparametrically. The asymptotic properties of the estimators are given. Finally, in a detailed application we compare the results empirically against those obtained in standard three step estimators based on predicted wages.