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Economics

Suppose you want to estimate the following labor supply equation:

Annual Work Hours = ? + ?*(Average Hourly Wage) + ?

You gather data on US workers aged 22 to 55 from the Current Population Survey. You define the Average Hourly Wage as self-reported total annual labor income divided by self-reported total annual work hours.

a. Describe in words how to interpret the coefficient? (Ignore any concerns about causality now).

b. Give two separate reasons why you might be concerned that? is not be a good estimate of the causal effect of a change in the hourly wage a worker faces on the number of hours that they work.

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Business Economics, Economics

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