Earnings Capacity and Labour Market Participation

We analyze models for individuals' labour market state.We distinguish between full-time and part-time work, but also between various types of economic inactivity, i.e. unemployment, disability, early retirement and working in the household.We consider the impact on the state probabilities of individual attributes, with emphasis on earnings capacity.We take account of the problem that only earnings of workers are observed, and of the potential endogeneity of earnings.We generalize the multinomial logit model, allowing for unobserved heterogeneity.Moreover, we allow for non-linearities due to, for example, minimum wages.Using micro-data from the Dutch Socio-Economic Panel, we look at static models and compare results for various years.Finally, we also look at dynamic models, in which the transition probabilities from employment into various inactivity states are modelled, conditional on job characteristics.