Wages, work, and unemployment

This paper provides new evidence on unemployment durations for individuals in Great Britain using a three state Markov framework in a competing risk s etting and a nationally representative data set. The analysis is based on t he premise that an individual's movements between labour market states can be represented by a Markov process. The modelling procedure combines the dy namic properties of the search approach to unemployment while using the lab our supply decision at each moment in time in response to the expected wage to include participation decisions. Using this framework, we are able to d etermine the effect of individual characteristics, including the expected w age, on labour market behaviour. The model is estimated separately for men and women, and for young and mature workers, to investigate whether labour market behaviour differs for these groups. The validity of the Markov assum ptions are tested using different model specifications, and changes in the model over calendar time are also presented.