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A Parametric Test for the Distinction between Unemployed and Out of the Labor Force Statuses

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Authors
Ahn, SeungChan; Low, Stuart
Issue Date
2007-01
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, Vol.20 No.1, pp. 59-92
Keywords
Bivariate probitMisclassificationUnemploymentOut of labor force
Abstract
Whether or not to empirically consider two (employed versus

not employed) or three (employed, unemployed, and out-of-laborforce)

classifications in labor supply studies is a controversial

issue. We develop a generalized censored probit likelihood

function that nests both possibilities. A novelty of this likelihood

function is that it allows researchers to test which representation

of the labor market is appropriate as well as to estimate the

degree to which classification errors may cloud inferences. Our

empirical results demonstrate that classifying the three groups is

useful to identify individuals labor force and employment

decisions separately. However, failure to incorporate classification

ambiguities may result in unemployed rates that are understated

and out-of-labor-force rates that are overstated.
ISSN
1225-0279
Language
English
URI
https://hdl.handle.net/10371/1375
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.20(1) (Spring 2007)
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