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Labor Market Entry and Earnings Dynamics: Bayesian Inference Using Mixtures-of-Experts Markov Chain Clustering

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Abstract

This paper analyzes patterns in the earnings development of young labor market entrants over their life cycle. We identify four distinctly different types of transition patterns between discrete earnings states in a large administrative data set. Further, we investigate the effects of labor market conditions at the time of entry on the probability of belonging to each transition type. To estimate our statistical model we use a model-based clustering approach. The statistical challenge in our application comes from the di±culty in extending distance-based clustering approaches to the problem of identify groups of similar time series in a panel of discrete-valued time series. We use Markov chain clustering, proposed by Pamminger and Frühwirth-Schnatter (2010), which is an approach for clustering discrete-valued time series obtained by observing a categorical variable with several states. This method is based on finite mixtures of first-order time-homogeneous Markov chain models. In order to analyze group membership we present an extension to this approach by formulating a probabilistic model for the latent group indicators within the Bayesian classification rule using a multinomial logit model.

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File URL: http://www.labornrn.at/wp/2010/wp1014.pdf
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Bibliographic Info

Paper provided by The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria in its series NRN working papers with number 2010-14.

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Length: 31 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:jku:nrnwps:2010_14

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Postal: NRN Labor Economics and the Welfare State, c/o Rudolf Winter-Ebmer, Altenbergerstr. 69, 4040 Linz
Phone: +43-732-2468-8216
Fax: +43-732-2468-8217
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Web page: http://www.labornrn.at/
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Related research

Keywords: Labor Market Entry Conditions; Transition Data; Markov Chain Monte Carlo; Multinomial Logit; Panel Data; Auxiliary Mixture Sampler; Bayesian Statistics;

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References

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  1. Yuji Genda & Ayako Kondo & Souichi Ohta, 2010. "Long-Term Effects of a Recession at Labor Market Entry in Japan and the United States," Journal of Human Resources, University of Wisconsin Press, vol. 45(1).
  2. Fraley C. & Raftery A.E., 2002. "Model-Based Clustering, Discriminant Analysis, and Density Estimation," Journal of the American Statistical Association, American Statistical Association, American Statistical Association, vol. 97, pages 611-631, June.
  3. Kahn, Lisa B., 2010. "The long-term labor market consequences of graduating from college in a bad economy," Labour Economics, Elsevier, Elsevier, vol. 17(2), pages 303-316, April.
  4. Illoong Kwon & Eva Meyersson Milgrom, 2007. "Cohort Effects in Wages and Promotions," Discussion Papers, Stanford Institute for Economic Policy Research 07-025, Stanford Institute for Economic Policy Research.
  5. Jeffrey M Wooldridge, 2002. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP18/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  6. Fruhwirth-Schnatter, Sylvia & Kaufmann, Sylvia, 2008. "Model-Based Clustering of Multiple Time Series," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 26, pages 78-89, January.
  7. Oreopoulos, Philip & Wachter, Till von & Heisz, Andrew, 2008. "The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates," IZA Discussion Papers 3578, Institute for the Study of Labor (IZA).
  8. Oddbjørn Raaum & Knut Røed, 2006. "Do Business Cycle Conditions at the Time of Labor Market Entry Affect Future Employment Prospects?," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 193-210, May.
  9. Weber, Andrea, 2002. "State Dependence and Wage Dynamics: A Heterogeneous Markov Chain Model for Wage Mobility in Austria," Economics Series, Institute for Advanced Studies 114, Institute for Advanced Studies.
  10. Paul Oyer, 2006. "Initial Labor Market Conditions and Long-Term Outcomes for Economists," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 20(3), pages 143-160, Summer.
  11. Paul Oyer, 2006. "The Macro-Foundations of Microeconomics: Initial Labor Market Conditions and Long-Term Outcomes for Economists," NBER Working Papers 12157, National Bureau of Economic Research, Inc.
  12. Konrad Banachewicz & André Lucas & Aad van der Vaart, 2008. "Modelling Portfolio Defaults Using Hidden Markov Models with Covariates," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 11(1), pages 155-171, 03.
  13. Juárez, Miguel A. & Steel, Mark F. J., 2010. "Model-Based Clustering of Non-Gaussian Panel Data Based on Skew-t Distributions," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 28(1), pages 52-66.
  14. Josef Zweimüller & Rudolf Winter-Ebmer & Rafael Lalive & Andreas Kuhn & Jean-Philippe Wuellrich & Oliver Ruf & Simon Büchi, 2009. "Austrian Social Security Database," NRN working papers, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria 2009-03, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
    • Josef Zweimüller & Rudolf Winter-Ebmer & Rafael Lalive & Andreas Kuhn & Jean-Philippe Wuellrich & Oliver Ruf & Simon Büchi, 2009. "Austrian social security database," IEW - Working Papers 410, Institute for Empirical Research in Economics - University of Zurich.
  15. Fruhwirth-Schnatter, Sylvia & Fruhwirth, Rudolf, 2007. "Auxiliary mixture sampling with applications to logistic models," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 51(7), pages 3509-3528, April.
  16. Kondo, Ayako, 2007. "Does the first job really matter? State dependency in employment status in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 21(3), pages 379-402, September.
  17. Juarez, Miguel A. & Steel, Mark F. J., 2006. "Model-based Clustering of non-Gaussian Panel Data," MPRA Paper 880, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Sylvia Frühwirth-Schnatter, 2011. "Panel data analysis: a survey on model-based clustering of time series," Advances in Data Analysis and Classification, Springer, Springer, vol. 5(4), pages 251-280, December.
  2. Frühwirth-Schnatter, Sylvia & Pamminger, Christoph & Weber, Andrea & Winter-Ebmer, Rudolf, 2014. "When Is the Best Time to Give Birth?," IZA Discussion Papers 8396, Institute for the Study of Labor (IZA).
  3. Christoph Pamminger & Regina Tüchler, 2011. "A Bayesian Analysis of Female Wage Dynamics Using Markov Chain Clustering," NRN working papers, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria 2011-04, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  4. Brunner, Beatrice & Kuhn, Andreas, 2010. "The Impact of Labor Market Entry Conditions on Initial Job Assignment, Human Capital Accumulation, and Wages," IZA Discussion Papers 5360, Institute for the Study of Labor (IZA).
  5. Beatrice Brunner & Andreas Kuhn, 2010. "The Impact of Labor Market Entry Condition on Initial Job Assignment, Human Capital Accumulation, and Wages," NRN working papers, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria 2010-15, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  6. Beatrice Brunner & Andreas Kuhn, 2010. "The impact of labor market entry conditions on initial job assignment, human capital accumulation, and wages," IEW - Working Papers 520, Institute for Empirical Research in Economics - University of Zurich.

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