LS_Q07 - Econ 1002: Example Labour Supply Q February 25th...

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1 Econ 1002: Example Labour Supply Q February 25 th 2009 Matthew Wakefield (IFS / UCL) a) Construct a 95% confidence interval for the effect of having children on hours worked. • 95% CI = (coeff – 1.96*s.e., coeff + 1.96*s.e.) – (coeff = coefficient, s.e. = standard error) • Given that: – Coefficient = - 7.801 – T-stat = 3.82 • s.e. = coeff / t-stat = 7.801 / 3.82 = 2.042 • So CI =(-7.801–1.96*2.042, -7.801+ 1.96*2.042) = (-11.80,-3.80) (Does not include 0) 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? • Model is: h = α + δ y + β w + γ w 2 + π m + λ k + μ own Elasticity wrt w is: (*) h w w h w w h ). 2 ( . γ β + =
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2 b) Continued • Now substitute expression for h (the model) into the expression (*) for the elasticity – In exam you should write this out!! • This will show that elasticity does depend on whether woman has kids ( k ), since this affects h (and coeff on k in eqn for h is statistically significant) – (Additionally, since coeff on
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LS_Q07 - Econ 1002: Example Labour Supply Q February 25th...

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