Does Labor Market History Matter?

This paper finds that labor market history plays an important role in the Danish labor market both by directly affecting the transitions between labor market states and indirectly through the wage. When comparing the relative importance of different types of state dependence, it is found that occurrence dependence from non-employment states seems to have the strongest effect on the employment rate, while employment history is the main driver of state dependence in the wage. Predictions based on the estimated model reveal potential negative long-term effects from external employment shocks and potential positive benefits from employment programs for long-term unemployed.