Testing intertemporal substitution, implicit contracts, and hours restriction models of the labor market using micro data

John C. Ham, Kevin T. Reilly

Research output: Contribution to journalArticlepeer-review

Abstract

We present new tests of three theories of the labor market: intertemporal substitution, hours restrictions, and implicit contracts. The intertemporal substitution test we implement is an exclusion test robust to many specification errors and we consistently reject this model. We model hours restrictions as part of an endogenous switching model. We compare the implicit probit equation to an unrestricted probit equation for unemployment and reject the hours restriction model. For the implicit contracts model, we estimate nonseparable within-period labor-supply and consumption equations. We test a cross-equation restriction of the model and cannot reject the implicit contracts model. (JEL E30, J22, J60).

Original languageEnglish (US)
Pages (from-to)905-927
Number of pages23
JournalAmerican Economic Review
Volume92
Issue number4
DOIs
StatePublished - Sep 2002

ASJC Scopus subject areas

  • Economics and Econometrics

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