State Dependence, Serial Correlation and Heterogeneity in Intertemporal Labor Force Participation of Married Women

The intertemporal labor force participation of married women is analyzed using a dynamic search framework. Maximum simulated likelihood (MSL) estimation is used to estimate dynamic Probit models, and the sensitivity to alternative assumptions examined using Linear Probability models. Participation decisions are characterized by significant positive state dependence, unobserved heterogeneity, and negatively correlated errors. The hypothesis that women's participation is exogenous to their fertility decisions is rejected when dynamics are ignored, but there is no evidence against this hypothesis in dynamic specifications. Women's participation response is stronger to permanent than current non-labor income, reflecting unobserved taste factors.