Story Name: Wages and Hours
Datafile Name: Wages and Hours
Abstract: The data are from a national sample of 6000 households with a male head and
earnings of less than $15,000 annually in 1966. Thirty-nine demographic subgroups
were formed for analysis of the relation between average hours worked during the
year and average hourly wages and other variables. The study was undertaken
in the context of proposals for a guaranteed annual wage (negative income tax).
At issue was the response of labor supply (hours worked) to increasing income and
effective hourly wages. If the response was negative, total production in the economy
could decline.
The idea of a negative income tax as an alternative to traditional welfare programs
was proposed independently by Milton Friedman of the University of Chicago and
Robert J. Lampman of the University of Wisconsin. The idea was never considered
seriously by the Johnson administration, but was considered for a time and then
abandoned by the Nixon administration.
Students will find here that a simple regression shows average hours increasing
with increasing wages. A three-variable set of predictors found from stepwise regres-
sion includes average asset holdings, age, and average hourly wage. The effect of
average hourly wage on average hours worked is now negative, however. Average
hours, average wages, and average asset holdings are positively inter-related. The
residuals from the three-predictor regression show one influential outlier.
Image: Plot of residuals versus average hourly rate.
