State dependence of labour force participation of married Australian women

Purpose - The purpose of this paper is to enhance the understanding of labour force participation behaviour of married Australian women, with a focus on identifying the sources of observed inter-temporal labour force participation persistence. Design/methodology/approach - A dynamic Probit model is applied to the Household, Income and Labour Dynamics in Australia (HILDA) Survey, a national representative panel survey of Australian households. The model used accounts for observed and unobserved individual heterogeneity and serially correlated transitory shocks to labour supply. Findings - The results show that both observed and unobserved individual heterogeneity contributes to observed inter-temporal persistence of labour force participation of married Australian women, but the persistence remains even after controlling for these factors. It is also found that failing to control for serially correlated unobserved transitory shocks would lead to underestimation of genuine state dependence of labour force participation; and that state dependence of labour force participation varies with age, education, health, immigration status and the number of children under the school age. Originality/value - This study adds to the international literature on labour force dynamics of women by providing Australian empirical evidence and through a flexible modelling framework. The result that there exists genuine positive state dependence in married Australian women’s labour force participation suggests that policy intervention that increases married women’s labour supply would have a long-lasting effect.