December 2010

IZA DP No. 5408: Disability and Multi-State Labour Force Choices with State Dependence

revised version published in: Economic Record, 2016, 92 (296), 28 - 46

I use a dynamic mixed multinomial logit model with unobserved heterogeneity to study the impact of work limiting disabilities on disaggregated labour choices. The first seven waves of the Household Income and Labour Dynamics in Australia survey are used to investigate this relationship. Findings point out to strong state dependence in employment choices. Further, the impact of disability on employment outcomes is highly significant. Model simulations suggest that high cross and own state dependence can amplify a one-off disability shock to alter the probability of full time employment and nonparticipation permanently, especially for low skilled individuals.