Labour Supply: Which Theory? A Critical Empirical Assessment

Abstract

The aim of this paper is to test econometrically a number of models of labour supply which fall within the neoclassical and Keynesian theories, in an attempt to obtain indications of validation of the theories themselves. The econometric assessment, carried out with a cohort approach to labour supply, shows that Italian female participation rates react well to the variables belonging to both the neoclassical versions of models — with the exception of the version regarding intertemporal choices — and the Keynesian ones. Both in terms of testing for the selection of alternative regression models, such as those for non-nested hypotheses and for selection of regressors, and of “internal” investigation within the estimated models, the results obtained are not without ambiguity. They therefore leave open the question as to which theory can explain labour supply in the most significant and appropriate way.