Nonparametric Analysis of Cross Section Labor Supply Curves

This paper studies the cross section labor supply curves of six different groups of workers - single male and female, married couple with nonworking spouse, and married couple with working spouse - using 1991 U.S. Consumer Expenditure Survey. Most existing empirical studies assume a simple linear functional form that does not allow the possibility of backward bending behavior for the sake of convenience in modelling. Multivariate local linear regression adopted in this paper shows significant nonlinearities and backward bending behavior of labor supply curve with respect to wage. This might be interpreted as an evidence against the possibility of exact aggregation of individual labor supply curves. Besides, it also shows that the elasticity measures of the parametric functions can be quite misleading.