Regression-Kink Approach for Wage Effect on Male Work Hours

Young sook Kim, Myoung jae Lee

    Research output: Contribution to journalArticlepeer-review

    4 Citations (Scopus)

    Abstract

    In finding the effect of after-tax wage rate on work hours, the main difficulty is the endogeneity of after-tax wage rate that equals 'one minus average tax rate' times wage rate. To overcome this endogeneity problem, we take advantage of jumps in the marginal income tax rate, which is a regression discontinuity (RD) idea. This RD, in turn, makes the average income tax rate 'kink-continuous', which is a regression kink (RK) idea. We provide a simple economic model resulting in the RD and RK features, explain how to implement RK in practice, and then apply our methods to Korean male data. Our main RK-based labour supply elasticity estimate 7.16% turned out to be insignificant with t-value 1.52, but it is much larger than most estimates in the literature. This may be attributed to, among other things, the facts that the RK instrument is unique, that RK identifies only the local elasticity at the kink point and that RK requires large data as regression derivatives are estimated.

    Original languageEnglish
    Pages (from-to)424-442
    Number of pages19
    JournalOxford Bulletin of Economics and Statistics
    Volume78
    Issue number3
    DOIs
    Publication statusPublished - 2016 Jun 1

    Bibliographical note

    Publisher Copyright:
    © 2015 The Department of Economics, University of Oxford and John Wiley & Sons Ltd.

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Statistics and Probability
    • Social Sciences (miscellaneous)
    • Statistics, Probability and Uncertainty

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