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Modeling employment dynamics with state dependence and unobserved heterogeneity

  • Prowse, Victoria

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38038.

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Date of creation: 10 Apr 2012
Date of revision: 10 Apr 2012
Handle: RePEc:pra:mprapa:38038
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