Modeling Employment Dynamics with State Dependence and Unobserved Heterogeneity

33 Pages Posted: 12 Jul 2009 Last revised: 11 Dec 2011

See all articles by Victoria L. Prowse

Victoria L. Prowse

Purdue University - Department of Economics; IZA Institute of Labor Economics; German Institute for Economic Research (DIW Berlin)

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Date Written: December 10, 2011

Abstract

We extend existing work on the dynamics of labor force participation by distinguishing between full-time and part-time employment and by allowing unobserved heterogeneity in the effects of previous employment outcomes, children and education on labor supply behavior. In addition, unobserved heterogeneity may feature autocorrelation and correlated random effects. Our results reveal significant variation in the effects of children and education on labor supply behavior. Moreover, the omission of random coefficients and autocorrelation biases estimates of state dependencies. On average, temporary shocks that increase the rate of part-time employment lead subsequently to lower rates of non-employment than do shocks that temporarily increase the rate of full-time work.

Keywords: Discrete Labor Supply, Repeated Multinomial Choice; Maximum Simulated Likelihood Estimation.

JEL Classification: C15, C25, J6, J22

Suggested Citation

Prowse, Victoria L., Modeling Employment Dynamics with State Dependence and Unobserved Heterogeneity (December 10, 2011). Available at SSRN: https://ssrn.com/abstract=1432123 or http://dx.doi.org/10.2139/ssrn.1432123

Victoria L. Prowse (Contact Author)

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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