Modelling voluntary labour supply

Recent studies have found a negative relationship between voluntary labour market activity and the opportunity cost of time, measured by the individual's net wage. We argue that the observed negative relationship may be spurious if market and non-market labour supply are jointly determined. We estimate a model of voluntary labour supply that separates the decision to volunteer at all from the decision about how many hours to volunteer. We demonstrate that failure to control for the endogeneity of observed wages with respect to the volunteering decision results in downward bias in the estimated coefficient on the wage variable. We also consider an alternative specification that adjusts the Ѱrice' of volunteering to take account of the value of activities donated as well as the opportunity cost of the individual's time.