A Goodness of Fit Test of Dual Labor Market Theory
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NBER Working Paper No. 2350
Issued in August 1987
NBER Program(s): LS
We subject our dual labor market model to a goodness of test fit and compare the results with those obtained using a single equation model with a complex error structure. The dual labor market does an excellent job of predicting the wage distribution except for failing to explain bunching at $7.50 and $10.00 per hour. The null hypothesis that the model is correct cannot be rejected at the .05 level. In contrast, the wage distribution predicted by the single labor market model differs significantly from the observed distribution.
Published: Published as "A Test of Dual Labor Market Theory", American Economic Review , Vol. 75, no.4 (1985): 792-805.
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