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You want to estimate the effect of wages (log of wages) on the hours of work supplied by married women already in the workforce. The
You want to estimate the effect of wages (log of wages) on the hours of work supplied by married women already in the workforce. The labor demand function is the second part of the system that determines wages and hours of work of married women in the labour force. The two structural equations are: ln(wage) = 1 2hours 3educ 4exper u1 (1) and hours = 1 2ln(wage) 3kids6 4nlincome u2 (2) where ln(wage) is the natural log of wage, hours is hours of work, educ is years of education, exper is years of experience, kids6 is number of dependent children in the household under the age of 6, and nlincome is non-labour income (for example the husband's income, rent, benefits, etc). If you ignore equation (2) and estimate only equation (1) using OLS, what kind of issues will the least squares estimator of the effect of hours (i.e. 2) suffer from and why
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