TY  - JOUR
AU  - Heim,Bradley T.
AU  - Meyer,Bruce D.
TI  - Work Costs and Nonconvex Preferences in the Estimation of Labor Supply Models
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9429
PY  - 2003
Y2  - January 2003
UR  - http://www.nber.org/papers/w9429
L1  - http://www.nber.org/papers/w9429.pdf
N1  - Author contact info:
Bradley Heim
School of Public and Environmental Affairs
Indiana University
1315 E 10th St
Bloomington, IN 47405
Tel: 812-855-9783
E-Mail: heimb@indiana.edu

Bruce D. Meyer
Harris School of Public Policy
University of Chicago
1155 E. 60th Street
Chicago, IL 60637
Tel: 773/702-2712
Fax: 773/702-0926
E-Mail: bdmeyer@uchicago.edu
AB  - We first critique the manner in which work costs have been introduced into labor supply estimation, and note the difficulty of incorporating a realistic rendering of the costs of work. We then show that, if work costs are not accounted for in the budget and time constraints in a structural labor supply model, they will be subsumed into the data generating preferences. We show that even if underlying preferences over consumption and leisure are convex, the presence of unobservable work costs can make these preferences appear nonconvex. Absent strong functional form assumptions, these work costs are not identified in data commonly used for labor supply estimation. However, we show that even if work costs cannot be separately identified, under plausible conditions, policy relevant calculations such as estimates of the effect of tax changes on labor supply and deadweight loss calculations, are not affected by the fact that estimated preferences incorporate work costs.
ER  -