MODELING EMPLOYMENT DYNAMICS WITH STATEDEPENDENCE AND UNOBSERVED HETEROGENEITY

This paper considers the problem of determining the extent of any state dependen-cies in women's labor supply behavior. Employment outcomes are modeled using adynamic multinomial choice framework including persistent unobserved heterogeneitywith a relatively general distribution. In order to ensure reliable parameter estimates,appropriate restrictions are imposed on the distribution of unobservables. Signi¯cantstate dependence is present in both full-time and part-time employment. State depen-dencies are overestimated if persistent unobservables are ignored, and underestimatedif an overly restrictive form of persistence is imposed....