This paper presents a utility maximization model of workers who make decisions to work or not over a lifetime. The objective is to maximize the presented discounted value of utility arising from the participation decisions. In addition to duration dependence introduced through time-variant job offer and layoff probabilities, state dependence enters the model by the existence of a different risk while working, namely, the dismissal risk, than the one while not working, namely, the possibility of no job offers. A dynamic programming algorithm is solved and estimated within a maximum likelihood routine, with data from the National Longitudinal Surveys youth cohort.
No takes yet. Share an insight, caveat, or question.
Füsun F. Gönül (1989) studied this question.