1. Consider the following equation, which shows Ordinary Least Squares estimates of the labour supply of
working women aged 2544.
hours
i
= 19.794  0.004Y
i
+ 1.387w
i
– 0.102w
i
2
+ 1.281M
i
 7.801 K
i
+ 3.210 Own
i
(5.08)
(2.18)
(3.12)
(2.04)
(1.41)
(3.82)
(1.91)
where :
hours is the number of hours worked per week of individual i
Y is other household income (per week)
w is the hourly wage
M is a dummy variable indicating whether the woman is married
K is a dummy variable indicating whether there are children in the household
Own is a dummy variable indicating whether the household is an owneroccupier
Numbers in brackets are (absolute) tratios
The average wage in the sample is £5 per hour, the average level of other household
income is £120 per week, and average hours per week worked is 23.2.
a) Construct a 95% confidence interval for the effect of having children on hours worked.
b) Derive a formula for the elasticity of labour supply with respect to the wage in this model. Does the
elasticity depend on whether or not the woman has children?
c) Compute the elasticity of labour supply with respect to the wage at the mean sample values. Does your
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 Spring '09
 matthewwakefield
 Economics, Regression Analysis, Supply And Demand, dummy variable, labour supply, 1.281Mi

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