Earnings Capacity and Labor Market Participation

Posted: 5 Feb 1997

See all articles by Arthur van Soest

Arthur van Soest

Tilburg University; Netspar; RAND Corporation; Institute for the Study of Labor (IZA)

Peter Fontein

Tilburg University

Rob Euwals

CPB Netherlands Bureau of Economic Policy Research; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: May 1996

Abstract

We analyze models for individuals' labor market state. We distinguish between full-time and part-time work, but also between various types of economic inactivity, i.e., unemployment, disability, early retirement and working in the household. We consider the impact on the state probabilities of individual attributes, with emphasis on earnings capacity. We take account of the problem that only earnings of workers are observed and of the potential endogeneity of earnings. We generalize the multinomial logit model, allowing for unobserved heterogeneity. Moreover, we allow for non-linearities due to, for example, minimum wages. Using micro-data from the Dutch Socio-Economic Panel, we look at static models and compare results for various years. Finally, we also look at dynamic models, in which the transition probabilities from employment into various inactivity states are modeled, conditional on job characteristics.

JEL Classification: J22

Suggested Citation

van Soest, Arthur H. O. and Fontein, Peter and Euwals, Rob, Earnings Capacity and Labor Market Participation (May 1996). Available at SSRN: https://ssrn.com/abstract=3693

Arthur H. O. van Soest (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

Institute for the Study of Labor (IZA)

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

Peter Fontein

Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Rob Euwals

CPB Netherlands Bureau of Economic Policy Research ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands
+31 70 33 83 438 (Phone)
+31 70 33 83 350 (Fax)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany
+49 228 3894 302 (Phone)
+49 228 3894 210 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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