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Modeling employment dynamics with state dependence and unobserved heterogeneity

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  • Prowse, Victoria

Abstract

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.

Suggested Citation

  • Prowse, Victoria, 2012. "Modeling employment dynamics with state dependence and unobserved heterogeneity," MPRA Paper 38038, University Library of Munich, Germany, revised 10 Apr 2012.
    • Handle: RePEc:pra:mprapa:38038
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    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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