Multinomial Employment Dynamics with State Dependence and Heterogeneity: Evidence from Japan

The existence of state dependence, that is, the persistence of employment status in dynamic multinomial choice behavior can lead to inequality through market segmentation. Although many studies have found the existence of state dependence, poor control of heterogeneity leaves the possibility of bias in the estimator. In this study, we investigate whether state dependence exists in married women’s choice of regular and non-regular work in Japan taking into account the unobserved heterogeneity as completely as possible. The empirical results suggest that significant, positive state dependence exists in the choice of regular and non-regular work and transitions between them. According to the simulation using the estimates, two important findings emerge; (1) the marginal transition probability to regular work dominates that of non-regular work and non-participation, irrespective of the initial participation state, and (2) if the first job is non-regular, a strong preference for working encourages a move to regular work.