An Econometric Analysis of the 'Backward-Bending' Labor Supply of Canadian Women
2013, Vol. 5 No. 09 | pg. 6/6 | «
Summary and Conclusion
Past studies on the labor supply of married Canadian women by Alice Nakamura and Masao Nakamura (1981), and Robinson and Tomes (1985) have found that the labor supply schedule of working women is backward bending with elasticity similar in magnitude to typical estimates reported for males. The major goal of this paper was to re-examine the issue with more recent data as of 2009 to provide a better understanding of both hours worked and wage rates. The results of this paper offer strong support for the conclusions reached by them. The markedly backward-bending shape of the labor supply curve of working Canadian women suggests that the income elasticity of demand for leisure is larger relative to the substitution effect for women than for men in Canada.
However, the results reported by Robinson and Tomes (1985) may suggest that the contrasting secular trends observed in the labor supply of men and women are the consequences of the differential responsiveness of male and female labor force participation to opportunities, rather than the hours worked by men and women (Robinson and Tomes, 1985). Additionally, the slope coefficients of the OLS and Heckit estimates do not vary by a large extent in terms of their economic and statistical significance, even though there is evidence of selectivity bias in the OLS hours equation. Furthermore, assortative mating is likely to play a fundamental role in explaining the positive relationship between husband’s income and the woman’s hours of labor that conflicts with the findings of the Nakamuras (1981) and Robinson and Tomes (1985). Lastly, although by ignoring the issue of heteroskedasticity the usual 2-stage Heckit method becomes seriously biased and subsequent t-tests of regression coefficients can suffer from large “size distortion,” the Heckit method is relatively simple to implement in the situations discussed.
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Endnotes
1.) The author would like to thank Professor Craig Brett for his invaluable suggestions and comments.
2.) Carliner et al. (1980) in their analysis of 1971 Canadian census data employ three measures of labor supply: labor force participation, hours per week, and weeks per year. Using education as a proxy for potential market wages they found that “greater education of the wife is associated with significantly increased labor supply for all three measures. This suggests that the … substitution effects of an increase in wf [the wife’s wage] … outweigh the income effect.”
3.) The emphasis of the three papers is quite different. Nakamura, Nakamura, and Cullen (1979) report estimates for Canadian women using the 1971 Canadian census. Nakamura and Nakamura (1981) analyze both Canadian and U.S. census data emphasizing the role of taxes. Nakamura and Nakamura (1983) using these same data sets, distinguish further between full-time and part-time workers.
4.) Robinson and Tomes (1985) used data from 1979 Quality of Life Survey, which is a survey conducted by the Institute for Behavioural Research, York University, to deal against the problems of using census data for their study. The survey contained a direct measure of the hourly wage rate and also presented hours of work directly rather than in intervals for a subset of Canadian women.
5.) Source: http://highered.mcgraw-hill.com/sites/dl/free/0070891540/43156/benjamin5_sample_chap02.pdf.
6.) Source: See http://highered.mcgraw-hill.com/sites/dl/free/0070891540/43156/benjamin5_sample_chap02.pdf for the original table.
7.) Standard hours are usually determined by collective agreements or company policies, and they are the hours beyond which overtime rates are paid. The data apply to non-office worker.
8.) Standard hours minus the average hours per week spent on holidays and vacations.
9.) This supply curve shows how the change in real wage rate affects the amount of hours worked by employees. Source: http://en.wikipedia.org/wiki/Backward_bending_supply_curve_of_labor. See the appendix section.
10.) Although the Heckman sample selection model is written in terms of hours of work H, the same equations
apply equally as well to the wage W.
11.) All the steps of the Heckit method is borrowed from lecture notes: Cross-Section Regression Estimates of labor Supply Elasticities: Procedures and Problems.
12.) See http://www23.statcan.gc.ca/imdb/p2SV.pl?Function=getSurvey&SDDS=3889&lang=en&db=imdb&adm=8&dis=2 for more details on the Survey of labor and Income Dynamics (SLID).
13.) Census data is not used as the limitations of Census data in labor economics is well documented [Killingsworth (1983); Angrist and Krueger (1999)]. Income variables are based on respondents’ memory and willingness to disclose this information that is mostly underreported in the Census.
14.) To check for educational assortative mating, the husband’s education variable was added to the actual data that contains only females. After running a single regression of husband’s education on female’s education, a positive correlation for each level of education was found. Hence, husband’s education was added to the model to see how it affects the results. However, it must be noted that adding husband’s education to the model did not change the Heckit results that much. Most importantly, since adding husband's education to the model still results in a positive coefficient of non-female income in the Heckit, the sorting is not on education even though there is a positive correlation among husband's and wife's education. Therefore, the Heckit results with the inclusion of husband’s education to the model are not reported in this paper. Moreover, the existing literature of labor supply of women doesn't include this kind of variable.
15.) It has been mentioned by Adkins and Hill (2004) that “Donald (1995) has studied this problem and suggested a semiparametric estimator that is consistent in heteroscedastic selectivity models. Chen & Khan (2003) has also proposed a semiparametric estimator of this model. More recently, Lewbel (2003) has proposed an alternative that is both easy to implement and robust to heteroskedastic misspecification of unknown form.” The authors themselves proposed a “simple estimator that is easily computed using standard regression software,” and studied the performance of the estimator in a small set of Monte Carlo simulations.
Appendix
Table 1.2: Variable Descriptions
hours |
total hours paid all jobs during 2009 |
|
wage |
composite hourly wage all paid jobs in 2009 |
|
wagesqrd |
the square of composite hourly wage all paid jobs |
|
age |
female's age, 2009, external cross-sec file |
|
agesqrd |
the square of female's age |
|
marst |
marital status of female as of December 31 of 2009 1 – female is married 2 – female is in a common-law relationship 3 – female is separated 4 – female is divorced 5 – female is widowed 6 – female is single (never married) |
|
fslsp |
female is living with spouse in 2009 1 – Yes 2 - No |
|
province |
Province of residence group, household, December 31, 2009 10 - Newfoundland and Labrador 11 – Prince Edward Island 12 – Nova Scotia 13 – New Brunswick 24 – Quebec 35 – Ontario 46 – Manitoba 47 – Saskatchewan 48 – Alberta 59 – British Columbia |
|
exper |
number of years of work experience, full-year full-time |
|
expersqrd |
the square of number of years of work experience, full-year full-time |
|
alimo |
Support payments received |
|
educ |
Highest level of education of female, 1st grouping 1 - Never attended school 2 - 1-4 years of elementary school 3 - 5-8 years of elementary school 4 - 9-10 years of elementary and secondary school 5 - 11-13 years of elementary and secondary school (but did not graduate) 6 - Graduated high school 7 - Some non-university postsecondary (no certificate) 8 - Some university (no certificate) 9 - Non-university postsecondary certificate 10 - University certificate below Bachelor's 11 - Bachelor's degree 12 - University certificate above Bachelor's, Master's, First professional degree in law, Degree in medicine, dentistry, veterinary medicine or optometry, Doctorate (PhD) |
|
nonfemaleincome |
income of non-female in the household |
|
kidslt6 |
female with a child less than six years old |
|
working |
total hours paid all jobs greater than zero |
|
Table 1.3: Summary Statistics of Canadian women
Variable |
Observations |
Mean |
Standard Deviation |
Minimum |
Maximum |
puchid25(id) |
32065 |
4012858 |
7414.513 |
4000001 |
4025693 |
province |
31819 |
33.74845 |
14.69714 |
10 |
59 |
agyfm |
32065 |
38.72475 |
25.07988 |
0 |
80 |
agyfmg46 |
32065 |
5.924965 |
2.56457 |
1 |
9 |
alimo46 |
32065 |
263.0711 |
1860.065 |
0 |
45000 |
earng46 |
31745 |
51132.91 |
63660.3 |
0 |
1387250 |
age |
17042 |
43.26998 |
10.50669 |
24 |
60 |
marst |
28264 |
2.8629 |
2.118468 |
1 |
6 |
fslac |
28325 |
1.907326 |
.2899806 |
1 |
2 |
fslsp |
28325 |
1.406884 |
.4912616 |
1 |
2 |
hours |
24009 |
1129.835 |
922.4242 |
0 |
5200 |
wage |
16371 |
19.89017 |
11.81493 |
6 |
142 |
exper |
24864 |
14.9928 |
13.18434 |
0 |
50 |
alimo |
28325 |
249.0071 |
1825.297 |
0 |
45000 |
earng42 |
28108 |
20899.72 |
28372.56 |
0 |
539000 |
mtinc42 |
28179 |
25065.66 |
30446.84 |
0 |
680000 |
oas42 |
28325 |
1210.796 |
2430.963 |
0 |
7750 |
ogovtr42 |
28325 |
33.60018 |
181.1052 |
0 |
2400 |
ottxm42 |
28325 |
561.278 |
4202.446 |
0 |
120000 |
prpen42 |
28325 |
2120.96 |
7977.688 |
0 |
185000 |
sapis42 |
28325 |
406.2242 |
2022.65 |
0 |
25000 |
uccb42 |
28325 |
139.9682 |
495.2109 |
0 |
7800 |
uiben42 |
28325 |
757.8279 |
2789.844 |
0 |
31000 |
wgsal42 |
28325 |
19643.28 |
27591.65 |
0 |
525000 |
wkrcp42 |
28325 |
130.5137 |
1279.867 |
0 |
32000 |
educ |
28204 |
7.580946 |
2.599754 |
1 |
12 |
totalfemincome |
28179 |
50174.48 |
56331.64 |
0 |
1110900 |
nonfemincome |
28067 |
29301.02 |
32393.06 |
0 |
680000 |
wagesqrd |
16371 |
535.2028 |
918.9231 |
36 |
20164 |
agesqrd |
28325 |
2642.723 |
1801.337 |
256 |
6400 |
expersqrd |
24864 |
398.6038 |
528.935 |
0 |
2500 |
kidslt6 |
32065 |
.0902542 |
.28655 |
0 |
1 |
working |
32065 |
.8051458 |
.3960946 |
0 |
1 |
Table 1.4: Marital Status of Canadian women
Marital Status |
Frequency |
Percent |
Cumulative |
1 – female is married |
13,841 |
48.97 |
48.97 |
2 – female is in a common-law relationship |
2,485 |
8.79 |
57.76 |
3 – female is separated |
982 |
3.47 |
61.24 |
4 – female is divorced |
1,900 |
6.72 |
67.96 |
5 – female is widowed |
2,776 |
9.82 |
77.78 |
6 – female is single (never married) |
6,280 |
22.22 |
100.00 |
Total |
28,264 |
100.00 |
Table 1.5: Canadian women living with spouse or not
Living with spouse or not |
Frequency |
Percent |
Cumulative |
1 - Yes |
16,800 |
59.31 |
59.31 |
2 - No |
11,525 |
40.69 |
100.00 |
Total |
28,325 |
100.00 |
Table 1.6: Residence of Canadian women
Province |
Frequency |
Percent |
Cumulative |
10 - Newfoundland and Labrador |
1,390 |
4.37 |
4.37 |
11 – Prince Edward Island |
870 |
2.73 |
7.10 |
12 – Nova Scotia |
1,877 |
5.90 |
13.00 |
13 – New Brunswick |
1,849 |
5.81 |
18.81 |
24 – Quebec |
6,136 |
19.28 |
38.10 |
35 – Ontario |
8,976 |
28.21 |
66.31 |
46 – Manitoba |
2,124 |
6.68 |
72.98 |
47 – Saskatchewan |
2,304 |
7.24 |
80.22 |
48 – Alberta |
3,172 |
9.97 |
90.19 |
59 – British Columbia |
3,121 |
9.81 |
100.00 |
Total |
31,819 |
100.00 |
Table 1.7: Highest level of education attained by Canadian women
Highest level of education |
Frequency |
Percent |
Cumulative |
1 - Never attended school |
111 |
0.39 |
0.39 |
2 - 1-4 years of elementary school |
227 |
0.80 |
1.20 |
3 - 5-8 years of elementary school |
2,025 |
7.18 |
8.38 |
4 - 9-10 years of elementary and secondary school |
2,037 |
7.22 |
15.60 |
5 - 11-13 years of elementary and secondary school (but did not graduate) |
1,869 |
6.63 |
22.23 |
6 - Graduated high school |
4,449 |
15.77 |
38.00 |
7- Some non-university postsecondary (no certificate) |
2,037 |
7.22 |
45.22 |
8 - Some university (no certificate) |
1,584 |
5.62 |
50.84 |
9 - Non-university postsecondary certificate |
8,548 |
30.31 |
81.15 |
10 - University certificate below Bachelor's |
617 |
2.19 |
83.34 |
11 - Bachelor's degree |
3,447 |
12.22 |
95.56 |
12 - University certificate above Bachelor's, Master's, First professional degree in law, Degree in medicine, dentistry, veterinary medicine or optometry, Doctorate (PhD) |
1,253 |
4.44 |
100.00 |
Total |
28,204 |
100.00 |
Table 1.8: Canadian women with or without a child less than six years old
Child less than six years old or not |
Frequency |
Percent |
Cumulative |
1 - Yes |
29,171 |
90.97 |
90.97 |
2 - No |
2,894 |
9.03 |
100.00 |
Total |
32,065 |
100.00 |
Table 2.9: OLS Estimates for Canadian Women
Dependent Variable: hours of work |
|
Independent Variables |
Coefficient |
composite hourly wage of all paid jobs |
-1.42 [2.70] |
the square of composite hourly wage of all paid jobs |
-.065** [.0327] |
female's age |
39.23*** [5.01] |
the square of female's age |
-.49*** [.06] |
1 - Never attended school (base group) |
--- |
2 - 1-4 years of elementary school |
-104.7 [201.5] |
3 - 5-8 years of elementary school |
65.4 [115.8] |
4 - 9-10 years of elementary and secondary school |
90.5 [110.1] |
5 - 11-13 years of elementary and secondary school (but did not graduate) |
21.25 [111] |
6 - Graduated high school |
117.3 [105.5] |
7 - Some non-university postsecondary (no certificate) |
4.36 [106.9] |
8 - Some university (no certificate) |
-14.6 [107.8] |
9 - Non-university postsecondary certificate |
85.8 [105.2] |
10 - University certificate below Bachelor's |
61.8 [109.1] |
11 - Bachelor's degree |
48 [106.2] |
12 - University certificate above Bachelor's, Master's, First professional degree in law, Degree in medicine, dentistry, veterinary medicine or optometry, Doctorate (PhD) |
51.84 [107.8] |
female is living with spouse (base group) |
--- |
female is not living with spouse |
77.14 *** [28] |
income of non-female in the household |
.008*** [.0007] |
1 – female is married (base group) |
--- |
2 – female is in a common-law relationship |
29.3 [15.98] |
3 – female is separated |
18.8 [35.14] |
4 – female is divorced |
20.65 [33.11] |
5 – female is widowed |
-78.7 [54.71] |
6 – female is single (never married) |
-23.2 [29.9] |
Support payments received |
-.013*** [.003] |
female without a child less than six years old (base group) |
--- |
female with a child less than six years old |
-193.2*** [17.73] |
constant |
606.7 [149.9] |
Sample size |
12469 |
R-squared |
0.143 |
* Statistical significance at the 90% level
** Statistical significance at the 95% level
*** Statistical significance at the 99% level
[ ] Heteroskedasticity-robust standard error
Table 2.0: Probit Estimates for Canadian women
Independent Variables |
Coefficient |
∆P(working) per unit ∆independent variable |
female's age |
.041*** (.012) |
.0164 |
the square of female's age |
-.001*** (.0001) |
-.0004 |
number of years of work experience, full-year full-time |
.09*** (.004) |
.036 |
the square of number of years of work experience, full-year full-time |
-.001*** (.0001) |
-.0004 |
1 - Never attended school (base group) |
--- |
--- |
2 - 1-4 years of elementary school |
.61 (.441) |
.244 |
3 - 5-8 years of elementary school |
.87** (.35) |
.348 |
4 - 9-10 years of elementary and secondary school |
1.11*** (.351) |
.444 |
5 - 11-13 years of elementary and secondary school (but did not graduate) |
1.16*** (.354) |
.464 |
6 - Graduated high school |
1.36*** (.35) |
.544 |
7 - Some non-university postsecondary (no certificate) |
1.25*** (.35) |
.5 |
8 - Some university (no certificate) |
1.34*** (.35) |
.536 |
9 - Non-university postsecondary certificate |
1.56*** (.35) |
.624 |
10 - University certificate below Bachelor's |
1.64*** (.36) |
.656 |
11 - Bachelor's degree |
1.8*** (.35) |
.72 |
12 - University certificate above Bachelor's, Master's, First professional degree in law, Degree in medicine, dentistry, veterinary medicine or optometry, Doctorate (PhD) |
1.96*** (.353) |
.784 |
10 - Newfoundland and Labrador (base group) |
--- |
--- |
11 – Prince Edward Island |
.301*** (.108) |
.1204 |
12 – Nova Scotia |
-.1 (.082) |
-.04 |
13 – New Brunswick |
-.001 (.083) |
-.0004 |
24 – Quebec |
-.08 (.07) |
-.032 |
35 – Ontario |
-.146 (.07) |
-.0584 |
46 – Manitoba |
.044 (.081) |
.0176 |
47 – Saskatchewan |
.0454 (.081) |
.0182 |
48 – Alberta |
.052 (.076) |
.0208 |
59 – British Columbia |
-.106 (.076) |
-.0424 |
constant |
-1.22 (.427) |
--- |
Pseudo R-squared |
0.17 |
--- |
Proportion of women who worked |
0.42 |
--- |
Final value of log of likelihood function |
-5637.7 |
--- |
* Statistical significance at the 90% level
** Statistical significance at the 95% level
*** Statistical significance at the 99% level
( ) Usual standard error
Table 2.1: Heckit Estimates for Canadian Women
Dependent Variable: hours of work |
|
Independent Variables |
Coefficient |
composite hourly wage of all paid jobs |
-9.1*** (1.41) |
the square of composite hourly wage of all paid jobs |
-.006 (.015) |
female's age |
19.8*** (5.13) |
the square of female's age |
-.235*** (.061) |
1 - Never attended school (base group) |
--- |
2 - 1-4 years of elementary school |
-84.8 (334.3) |
3 - 5-8 years of elementary school |
-18.02 (280) |
4 - 9-10 years of elementary and secondary school |
-50.34 (278.3) |
5 - 11-13 years of elementary and secondary school (but did not graduate) |
-148.6 (279.2) |
6 - Graduated high school |
-67.43 (277.2) |
7 - Some non-university postsecondary (no certificate) |
-188.9 (277.7) |
8 - Some university (no certificate) |
-202.9 (278.2) |
9 - Non-university postsecondary certificate |
-125.9 (277.1) |
10 - University certificate below Bachelor's |
-183.8 (279.1) |
11 - Bachelor's degree |
-171.1 (277.4) |
12 - University certificate above Bachelor's, Master's, First professional degree in law, Degree in medicine, dentistry, veterinary medicine or optometry, Doctorate (PhD) |
-174.3 (278.1) |
female is living with spouse (base group) |
--- |
female is not living with spouse |
60.9** (25.6) |
income of non-female in the household |
.01*** (.0003) |
1 – female is married (base group) |
--- |
2 – female is in a common-law relationship |
19.5 (17) |
3 – female is separated |
24.6 (34.52) |
4 – female is divorced |
20.3 (31.3) |
5 – female is widowed |
-73.3 (50.9) |
6 – female is single (never married) |
-7.3 (27.8) |
Support payments received |
-.013*** (.003) |
female without a child less than six years old (base group) |
--- |
female with a child less than six years old |
-172.2*** (17.3) |
constant |
1292.3 (299.2) |
(Selectivity bias) |
-314.8 (18.12) |
Sample size |
13515 |
* Statistical significance at the 90% level
** Statistical significance at the 95% level
*** Statistical significance at the 99% level
( ) Usual standard error