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Book part
Publication date: 26 August 2015

Eirini Andriopoulou and Panos Tsakloglou

The paper analyses the effects of individual and household characteristics on current poverty status, while controlling for initial conditions, past poverty status and…

Abstract

The paper analyses the effects of individual and household characteristics on current poverty status, while controlling for initial conditions, past poverty status and unobserved heterogeneity in 14 European countries for the period 1994–2001, using the European Community Household Panel. The distinction between true state dependence and individual heterogeneity has important policy implications, since if the former is the main cause of poverty it may be crucial to break the ‘vicious circle’ of poverty using income-supporting social policies, whereas if it is the latter anti-poverty policies should focus primarily on education, training, development of personal skills and other labour market oriented policies. The empirical results are similar in qualitative terms but rather different in quantitative terms across the EU countries covered in the paper. State dependence remains significant in all model specifications, even after controlling for unobserved heterogeneity or when removing possible endogeneity bias. Higher poverty rates and higher poverty persistence are associated with particular welfare state regimes, although the link is substantially weakened when other explanatory variables are included in the analysis.

Details

Measurement of Poverty, Deprivation, and Economic Mobility
Type: Book
ISBN: 978-1-78560-386-0

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Book part
Publication date: 6 August 2014

Kenneth Y. Chay and Dean R. Hyslop

We examine the roles of sample initial conditions and unobserved individual effects in consistent estimation of the dynamic binary response panel data model. Different…

Abstract

We examine the roles of sample initial conditions and unobserved individual effects in consistent estimation of the dynamic binary response panel data model. Different specifications of the model are estimated using female welfare and labor force participation data from the Survey of Income and Program Participation. These include alternative random effects (RE) models, in which the conditional distributions of both the unobserved heterogeneity and the initial conditions are specified, and fixed effects (FE) conditional logit models that make no assumptions on either distribution. There are several findings. First, the hypothesis that the sample initial conditions are exogenous is rejected by both samples. Misspecification of the initial conditions results in drastically overstated estimates of the state dependence and understated estimates of the short- and long-run effects of children on labor force participation. The FE conditional logit estimates are similar to the estimates from the RE model that is flexible with respect to both the initial conditions and the correlation between the unobserved heterogeneity and the covariates. For female labor force participation, there is evidence that fertility choices are correlated with both unobserved heterogeneity and pre-sample participation histories.

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Book part
Publication date: 6 August 2014

Jorgen Hansen, Magnus Lofstrom, Xingfei Liu and Xuelin Zhang

This article analyzes transitions into and out of social assistance (SA) in Canada. We estimate dynamic probit models, controlling for endogenous initial conditions and…

Abstract

This article analyzes transitions into and out of social assistance (SA) in Canada. We estimate dynamic probit models, controlling for endogenous initial conditions and unobserved heterogeneity, using longitudinal data extracted from the Survey of Labour and Income Dynamics (SLID) for the years 1993–2010. The data indicate that there are substantial provincial differences in SA participation with higher participation rates in the eastern part of the country. However, since the mid-1990s, participation rates have fallen substantially in all provinces with only a modest increase at the end of the observation period. Results from the probit models suggest that there is a significant time dependency in social assistance, even after controlling for endogenous initial conditions and unobserved heterogeneity. The extent of this state dependence varies across provinces.

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Book part
Publication date: 26 April 2014

Konstantinos Drakos, Ekaterini Kyriazidou and Ioannis Polycarpou

This paper seeks to explain the serial persistence as well as the substantial number of zeros characterizing global bilateral investment holdings. We explore the different…

Abstract

Purpose

This paper seeks to explain the serial persistence as well as the substantial number of zeros characterizing global bilateral investment holdings. We explore the different sources of serial persistence in the data (unobserved country pair effects, genuine state dependence, and transitory shocks) and examine the crucial factors affecting the decision to invest in a host country.

Methodology

Based on a gravity setup, we consider investment behavior at the extensive (participation) margin and employ dynamic first-order Markov probit models, controlling for unobserved cross-sectional heterogeneity and serial correlation in the transitory error component, in order to explore the sources of persistence. Within this modeling framework we explore the importance of institutional quality of the host country in attracting foreign investment.

Findings

The data support that the strong persistence is driven by true state dependence, implying that past investment experiences strongly impact on the trajectory of future investment holdings. Institutional quality appears to play a significant role to attract foreign investment.

Research implications

The empirical findings suggest that due to the existence of genuine state dependence, inward-investment stimulating policy measures could have a more pronounced effect since they are likely to induce a permanent change to the future trajectory of inward investment.

Originality

Both the substantial number of zeros and the salient persistence characterizing bilateral investment holdings decision have been previously overlooked in the literature. A study modeling jointly the levels and the selection mechanism could prove a fruitful direction for future research.

Details

Macroeconomic Analysis and International Finance
Type: Book
ISBN: 978-1-78350-756-6

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Book part
Publication date: 6 August 2014

Sebastian Königs

I study state dependence in social assistance receipt in Germany using annual survey data from the German Socio-Economic Panel for the years 1995–2011. There is…

Abstract

I study state dependence in social assistance receipt in Germany using annual survey data from the German Socio-Economic Panel for the years 1995–2011. There is considerable observed state dependence, with an average persistence rate in benefits of 68 per cent comparing to an average entry rate of just above 3 per cent. To identify a possible structural component, I estimate a series of dynamic random-effects probit models that control for observed and unobserved heterogeneity and endogeneity of initial conditions. I find evidence of substantial structural state dependence in benefit receipt. Estimates suggest that benefit receipt one year ago is associated with an increase in the likelihood of benefit receipt today by a factor of 3.4. This corresponds to an average partial effect of 13 percentage points. Average predicted entry and persistence rates and the absolute level of structural state dependence are higher in Eastern Germany than in Western Germany. I find only little evidence for time variation in state dependence around the years of the Hartz reforms.

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Safety Nets and Benefit Dependence
Type: Book
ISBN: 978-1-78441-110-7

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Book part
Publication date: 26 November 2020

Alessio Fusco and Nizamul Islam

This paper investigates the effect of household size, and in particular of the number of children of different age groups, on poverty, defined as being in a situation of…

Abstract

This paper investigates the effect of household size, and in particular of the number of children of different age groups, on poverty, defined as being in a situation of low income. We apply various static and dynamic probit models to control for the endogeneity of the variables of interest and to account for unobserved heterogeneity, state dependence, and serially correlated error components. Using Luxembourg longitudinal data, we show that the number of children of different age groups significantly affects the probability of being poor. However, the magnitude of the effect varies across different specifications. In addition, we find strong evidence of true poverty persistency due to past experience, spurious poverty persistency due to individual heterogeneity, and transitory random shocks.

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Inequality, Redistribution and Mobility
Type: Book
ISBN: 978-1-80043-040-2

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Book part
Publication date: 1 October 2008

Lorenzo Cappellari and Stephen P. Jenkins

We model transitions between unemployment, low-paid and high-paid employment by British men using a first order Markov model with endogenous switching that also takes into…

Abstract

We model transitions between unemployment, low-paid and high-paid employment by British men using a first order Markov model with endogenous switching that also takes into account the endogeneity of initial conditions, selection into employment, and sample attrition. Our estimates indicate that all three selectivity issues are non-ignorable. We demonstrate several interrelationships between the dynamics of (un)employment and low-paid work between one year and the next, represented by forms of (cross-)state dependence. Controlling for heterogeneity, the probability of a man having a low-paid job in one year depends not only whether he had a job a year before but also whether that job was low paid. The probability of his being employed at all depends on whether he had a job the previous year.

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Work, Earnings and Other Aspects of the Employment Relation
Type: Book
ISBN: 978-1-84950-552-9

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Article
Publication date: 13 June 2008

Amynah Gangji and Robert Plasman

The purpose of this paper is to investigate the causes of unemployment persistence among the Belgian labour force. The underlying issue is to determine the eventual…

Abstract

Purpose

The purpose of this paper is to investigate the causes of unemployment persistence among the Belgian labour force. The underlying issue is to determine the eventual existence of a true causal relationship between successive unemployment spells.

Design/methodology/approach

The model used is a dynamic random effects probit model controlling for unobserved heterogeneity and the initial condition problem. It was applied to the Panel Study on Belgian Households (1994‐2002).

Findings

The results suggest that while observed and unobserved heterogeneity explain between 57 per cent and 82 per cent of unemployment persistence, the remainder is induced by the presence of state dependence. All else being equal, an individual unemployed this year will be between 11.4 and 33 percentage points more likely to be unemployed next year as compared with an employed person.

Practical implications

The presence of a stigmatisation effect of unemployment means that the costs of unemployment are much higher than the simple loss of income and human capital associated with the current job loss. The study demonstrates the importance of concentrating efforts on the prevention of unemployment.

Originality/value

The paper's contribution is to test again the hypothesis of the presence of state dependence in unemployment using a different technique, allowing, among other things, to control for exogenous variables. The paper demonstrates its existence and measures its contribution in the explanation of unemployment persistence in Belgium, besides that of observed and unobserved characteristics.

Details

International Journal of Manpower, vol. 29 no. 3
Type: Research Article
ISSN: 0143-7720

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Article
Publication date: 8 May 2018

Lixin Cai

The purpose of this paper is to enhance the understanding of labour force participation behaviour of married Australian women, with a focus on identifying the sources of…

Abstract

Purpose

The purpose of this paper is to enhance the understanding of labour force participation behaviour of married Australian women, with a focus on identifying the sources of observed inter-temporal labour force participation persistence.

Design/methodology/approach

A dynamic Probit model is applied to the Household, Income and Labour Dynamics in Australia (HILDA) Survey, a national representative panel survey of Australian households. The model used accounts for observed and unobserved individual heterogeneity and serially correlated transitory shocks to labour supply.

Findings

The results show that both observed and unobserved individual heterogeneity contributes to observed inter-temporal persistence of labour force participation of married Australian women, but the persistence remains even after controlling for these factors. It is also found that failing to control for serially correlated unobserved transitory shocks would lead to underestimation of genuine state dependence of labour force participation; and that state dependence of labour force participation varies with age, education, health, immigration status and the number of children under the school age.

Originality/value

This study adds to the international literature on labour force dynamics of women by providing Australian empirical evidence and through a flexible modelling framework. The result that there exists genuine positive state dependence in married Australian women’s labour force participation suggests that policy intervention that increases married women’s labour supply would have a long-lasting effect.

Details

International Journal of Manpower, vol. 39 no. 2
Type: Research Article
ISSN: 0143-7720

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Article
Publication date: 8 July 2020

Lixin Cai

The purpose of this study is to enhance understanding labour supply dynamics of the UK workers by examining whether and to what extent there is state dependence in the…

Abstract

Purpose

The purpose of this study is to enhance understanding labour supply dynamics of the UK workers by examining whether and to what extent there is state dependence in the labour supply at both the extensive and intensive margins.

Design/methodology/approach

A dynamic two-tiered Tobit model is applied to the first seven waves of Understanding Society: the UK Household Longitudinal Study. The model used accounts for observed and unobserved individual heterogeneity and serially correlated transitory shocks to labour supply to draw inferences on state dependence.

Findings

The results show that both observed and unobserved individual heterogeneity contributes to observed inter-temporal persistence of the labour supply of the UK workers, and the persistence remains after these factors are controlled for, suggesting true state dependence at both the extensive and intensive margins of the labour supply. The study also finds that at both the margins, the state dependence of labour supply is larger for females than for males and that for both genders the state dependence is larger for people with low education, mature aged workers and people with long-standing illness or impairment. The results also show that estimates from a conventional Tobit model may produce misleading inferences regarding labour supply at the extensive and intensive margins.

Originality/value

This study adds to the international literature on labour supply dynamics by providing empirical evidence for both the extensive and intensive margins of labour supply, while previous studies tend to focus on the extensive margin of labour force participation only. Also, unlike earlier studies that often focus on females, this study compares labour supply dynamics between males and females. The study also compares the estimates from the more flexible two-tiered Tobit model with that from the conventional Tobit model.

Details

International Journal of Manpower, vol. 42 no. 3
Type: Research Article
ISSN: 0143-7720

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