Title

Wages and Hours: Estimating Vector Autoregressions with Panel Data

Author(s)

Douglas Holtz-Eakin Douglas Holtz-Eakin (Columbia University )

Whitney Newey Whitney Newey (Princeton University)

Harvey S. Rosen Harvey Rosen (Princeton University)

Abstract

This paper considers estimation and testing of vector autoregression coefficients in panel data, and uses the techniques to analyze the dynamic properties of wages and hours among American males. The model allows for non- stationary individual effects, and is estimated by applying instrumental variables to the quasi-differenced autoregressive equations. Particular attention is paid to specifying lag lengths and forming convenient test statistics. The empirical results suggest that the wage equation contains at most a single lag of hours and wages, and that one cannot reject the hypothesis that lagged hours may be excluded from the wage equation. Our results also show that lagged hours is important in the hours equation, which is consistent with alternatives to the simple labor supply model that allow for costly hours adjustment or preferences that are not time separable.

Creation Date

1987-06

Section URL ID

IRS

Paper Number

222

URL

https://dataspace.princeton.edu/bitstream/88435/dsp0105741r70t/1/222.pdf

File Function

Jel

D62, D63

Keyword(s)

labor supply, vector autoregression, panel data

Suppress

false

Series

1