The two perhaps most influential empirical labor supply studies carried out
in the United States in recent pears, Hausman (1981) and MaCurdy, Green, a
nd Paarsch (1990), report sharply contradicting labor supply estimates. In
this paper we show that the seemingly irreconcilable views on the size of w
ork disincentive effects and welfare losses can be attributed to the use of
differing nonlabor income and wage measures in the two sturdies. Monte Car
lo experiments suggest that the wage measure adopted by MaCurdy, Green, and
Paarsch (1990) might cause a severely down-ai ward biased wage effect such
that data falsely refute the basic notion of utility maximization.