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A Parametric Test for the Distinction between Unemployed and Out of the Labor Force Statuses
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- Authors
- Issue Date
- 2007-01
- Citation
- Seoul Journal of Economics, Vol.20 No.1, pp. 59-92
- Keywords
- Bivariate probit ; Misclassification ; Unemployment ; Out 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
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