Abstract:This study investigates the causes of unemployment persistence among the Belgian labour force. The underlying issue was to determine the impact of past unemployment spells on future labour market opportunities. Some European studies have demonstrated the existence of a true causal relationship between successive unemployment spells implying a stigmatisation effect for the unemployed. This so-called state dependence can occur through a reduction in human capital or through employer recruitment and labour retention practices. The model used is a dynamic random effects probit model controlling for unobserved heterogeneity and the initial condition problem. It was applied on the Panel Study on Belgian Households, covering the years 1994 to 2002. The results suggest that while observed and unobserved heterogeneity explain between 57% and 82% of unemployment persistence, the remainder is induced by the presence of state dependence. All else equal, an individual unemployed this year will be between 11.4 and 33 percentage points more likely to be unemployed next year as compared with an employed person. The presence of a stigmatisation effect of unemployment involves that the costs of unemployment are much higher than the simple loss of income and human capital associated to the current job loss. The study demonstrates the importance to concentrate the efforts on the prevention of unemployment.Keywords: unemployment persistence, state dependence, dynamic random effects probit model, unobserved heterogeneity, initial condition, BelgiumWe thank Khalid Sekkat, Ilan Tojerow and participants of the DULBEA-ETE internal seminar for helpful comments and discussions.

This paper provides evidences on the effects of unobserved individual heterogeneity on estimated gender pay differentials. Using the European Community Household Panel (ECHP), we present a crosscountry comparison of the evolution of unadjusted and adjusted gender pay gaps using both cross-section and panel data estimation techniques. The analysed countries differ greatly with respect to labour market legislation, bargaining practices structure of earnings and female employment rates.. Once adjusting for unobserved heterogeneity, we find a narrowed male-female pay differential, as well as significantly different rates of return on individual characteristics. In particularly, the adjusted wage differential decreases by 7% in Belgium, 14% in Ireland, between 20-30% Germany, Italy, the Netherlands and Spain and of 41% and 54% in the UK and in Denmark respectively.