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Estimating labor force joiners and leavers using a heterogeneity augmented two-tier stochastic frontier

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  • Das, Tirthatanmoy
  • Polachek, Solomon W.

Abstract

In a seminal paper, Basmann (1985) introduced a serial correlation structure based on an intertemporal adjustment mechanism. Basmann’s 1985 paper of course was built on his previous pioneering work on estimation and identifiability in structural equations leading to 2SLS (Basmann, 1957, 1960). In this paper, we follow a similar path. We derive a non-standard unit root serial correlation formulation for intertemporal adjustments in the labor force participation rate. This leads to a tractable three-error component model, which in contrast to other models embeds heterogeneity into the error structure. Unlike in the typical i.i.d. three-error component two-tier stochastic frontier model, our equation’s error components are independent but not identically distributed. This leads to a complex nonlinear likelihood function requiring identification through a two-step estimation procedure, which we estimate using Current Population Survey (CPS) data. By transforming the basic equation linking labor force participation to the working age population, this paper devises a new method which can be used to identify labor market joiners and leavers. The method’s advantage is its parsimonious data requirements, especially alleviating the need for survey based longitudinal data.

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  • Das, Tirthatanmoy & Polachek, Solomon W., 2017. "Estimating labor force joiners and leavers using a heterogeneity augmented two-tier stochastic frontier," Journal of Econometrics, Elsevier, vol. 199(2), pages 156-172.
    • Handle: RePEc:eee:econom:v:199:y:2017:i:2:p:156-172
    DOI: 10.1016/j.jeconom.2017.05.007
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    Cited by:

    1. Alecos Papadopoulos, 2024. "The Nash Bargaining Two-tier Stochastic Frontier Model," Advances in Econometrics, in: Essays in Honor of Subal Kumbhakar, volume 46, pages 439-476, Emerald Group Publishing Limited.
    2. Christopher F. Parmeter, 2018. "Estimation of the two-tiered stochastic frontier model with the scaling property," Journal of Productivity Analysis, Springer, vol. 49(1), pages 37-47, February.
    3. Shirong Zhao & Jeremy Losak, 2024. "Two-tiered stochastic frontier models: a Bayesian perspective," Journal of Productivity Analysis, Springer, vol. 61(2), pages 85-106, April.

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    More about this item

    Keywords

    Two-tier stochastic frontier; Identification; Labor force dynamics;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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