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Modeling Employment Dynamics with State Dependence and Unobserved Heterogeneity

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  • Prowse, Victoria L.

    (Purdue University)

Abstract

This paper extends existing work on labor force participation dynamics by distinguishing between full-time and part-time employment and allowing unobserved heterogeneity in the effects of previous employment outcomes, children and education on employment dynamics. The results reveal significant autocorrelation in unobservables, and significant variation in the effects of children and education on labor supply preferences. Moreover, omission of random coeffcients or autocorrelation can bias significantly estimates of policy effects. On average, policies temporarily incentivizing part-time and full-time employment are equally effective tools for reducing non-employment. However, non-employment among women with young children is more responsive to policies encouraging part-time rather than full-time work.

Suggested Citation

  • Prowse, Victoria L., 2010. "Modeling Employment Dynamics with State Dependence and Unobserved Heterogeneity," IZA Discussion Papers 4889, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp4889
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    More about this item

    Keywords

    state dependence; discrete labor supply; unobserved heterogeneity; repeated multinomial choice;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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