The predictive value of subjective labour supply data: A partial-adjustment model with measurement error

This paper tests the predictive value of subjective labour supply data for adjustments in working hours over time. The idea is that if subjective labour supply data help to predict working hours, the subjective data must contain at least some information on individual labour supply preferences. In this paper, I formulate a partial-adjustment model that allows for measurement error in the observed variables. Applying estimation methods that are developed for dynamic panel data models, I find evidence for a predictive power of subjective labour supply data concerning desired working hours in the German Socio-Economic Panel 1988–1995.I wish to thank John Haisken-DeNew, Astrid Kunze, Markus Pannenberg, Winfried Pohlmeier, Frank Windmeijer, Rainer Winkelmann, my former colleagues at IZA and two anonymous referees for their valuable comments. The author gratefully acknowledges DIW for providing the data.First version received: December 2001/Final version received: December 2003