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Optimal Allocation of Time and Estimation of Market Wage Functions

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  • B. F. Kiker
  • M. Mendes de Oliveira

Abstract

Second-generation studies of wage determination are based on the observation that wages of employed workers are a biased sample of the true population values because of selectivity, and a well-known two-stage method to correct for selectivity bias has been proposed by Heckman (1976). The basic notion behind the second-generation approach is that, in a setting of optimal decision making, the individual's choice of market work or not conveys valuable information that can improve our ability to estimate market wage equations. In this paper, we extend second-generation studies by proposing that there is additional useful information for estimating market wage functions in knowing not only if participation occurs, but also knowing how many hours a person actually works in a household sector (as opposed to consuming "pure" leisure). Accordingly, we extend the conventional work-leisure model of labor supply to accommodate time devoted to household production and adopt an estimation technique that addresses simultaneously the issues of sample censoring and the joint determination of nonmarket returns and nonmarket time. It appears that the disentanglement of the effects of investments in human capital on market and nonmarket productivity lead to sizably higher labor market returns to schooling, tenure, and experience for women than those obtained by standard approaches.

Suggested Citation

  • B. F. Kiker & M. Mendes de Oliveira, 1992. "Optimal Allocation of Time and Estimation of Market Wage Functions," Journal of Human Resources, University of Wisconsin Press, vol. 27(3), pages 445-471.
    • Handle: RePEc:uwp:jhriss:v:27:y:1992:i:3:p:445-471
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    Cited by:

    1. Botelho, Anabela & Bland Jones, Cheryl & Kiker, B. F., 1998. "Nursing wages and educational credentials: the role of work experience and selectivity bias," Economics of Education Review, Elsevier, vol. 17(3), pages 297-306, June.
    2. Polachek, Solomon W., 2008. "Earnings Over the Life Cycle: The Mincer Earnings Function and Its Applications," Foundations and Trends(R) in Microeconomics, now publishers, vol. 4(3), pages 165-272, April.
    3. Donni, Olivier, 2008. "Labor supply, home production, and welfare comparisons," Journal of Public Economics, Elsevier, vol. 92(7), pages 1720-1737, July.
    4. Das, Tirthatanmoy & Polachek, Solomon, 2017. "Micro Foundations of Earnings Differences," IZA Discussion Papers 10922, Institute of Labor Economics (IZA).
    5. Solomon Polachek, 2003. "Mincer's Overtaking Point and the Life Cycle Earnings Distribution," Review of Economics of the Household, Springer, vol. 1(4), pages 273-304, December.
    6. Sharp, David C. & Heath, Julia A. & Smith, William T. & Knowlton, David S., 2004. "But can she cook? Women's education and housework productivity," Economics of Education Review, Elsevier, vol. 23(6), pages 605-614, December.
    7. Victoria Prowse, 2004. "Estimating Time Demand Elasticities Under Rationing," Economics Series Working Papers 209, University of Oxford, Department of Economics.

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