Applying Heterogeneous Transition Models in Labour Economics: the Role of Youth Training in Labour Market Transitions

We illustrate the di±culties raised by four features of realistic transition models in labour economics: dimensionality, institutional constraints, persistence and sample attrition. We estimate a multi-spell multi-state transition model using longitudinal data on the 1988 cohort of male school-leavers in North-West England. The model predicts transitions between college, the government Youth Training Scheme (YTS), employment and unemployment, allowing for endogenous sample attrition and persistent cross-correlated heterogeneity. We simulate the impact of YTS, allowing for endogenous YTS selection induced by heterogeneity. The main ̄ndings are a strong positive e®ect of YTS participation on employment prospects and a large negative impact of early drop-out from YTS.