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  4. September 2002
  5. Testing Intertemporal Substitution, Implicit Contracts, and Hours Restriction Models of the Labor Market Using Micro Data

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Testing Intertemporal Substitution, Implicit Contracts, and Hours Restriction Models of the Labor Market Using Micro Data

  • John C. Ham
  • Kevin T. Reilly
American Economic Review
vol. 92, no. 4, September 2002
(pp. 905–927)
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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)

Citation

Ham, John, C., and Kevin T. Reilly. 2002. "Testing Intertemporal Substitution, Implicit Contracts, and Hours Restriction Models of the Labor Market Using Micro Data ." American Economic Review, 92 (4): 905–927. DOI: 10.1257/00028280260344524

JEL Classification

  • J22 Time Allocation and Labor Supply
  • J64 Unemployment: Models, Duration, Incidence, and Job Search
  • J41 Labor Contracts