Estimating Labor Force Joiners and Leavers Using a Heterogeneity Augmented Two-Tier Stochastic Frontier

46 Pages Posted: 5 Feb 2017

See all articles by Tirthatanmoy Das

Tirthatanmoy Das

Temple University; University of Central Florida - College of Business Administration - Department of Economics; IZA

Solomon W. Polachek

State University of New York at Binghamton; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Abstract

We derive a non-standard unit root serial correlation formulation for intertemporal adjustments in the labor force participation rate. This leads to a tractable three-error component model, which in contrast to other models embeds heterogeneity into the error structure. Unlike in the typical iid three-error component two-tier stochastic frontier model, our equation's error components are independent but not identically distributed. This leads to a complex nonlinear likelihood function requiring identification through a two-step estimation procedure, which we estimate using Current Population Survey (CPS) data. By transforming the basic equation linking labor force participation to the working age population, this paper devises a new method which can be used to identify labor market joiners and leavers. The method's advantage is its parsimonious data requirements, especially alleviating the need for survey based longitudinal data.

Keywords: two-tier stochastic frontier, identification, labor force dynamics

JEL Classification: C23, C51, J21

Suggested Citation

Das, Tirthatanmoy and Polachek, Solomon W., Estimating Labor Force Joiners and Leavers Using a Heterogeneity Augmented Two-Tier Stochastic Frontier. IZA Discussion Paper No. 10534, Available at SSRN: https://ssrn.com/abstract=2911472

Tirthatanmoy Das (Contact Author)

Temple University

No Address Available

University of Central Florida - College of Business Administration - Department of Economics ( email )

Orlando, FL 32816-1400
United States

IZA ( email )

Solomon W. Polachek

State University of New York at Binghamton ( email )

Binghamton, NY 13902-6000
United States
607-777-2144 (Phone)
607-777-4900 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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