How Many Labour Force States? An Analysis Based on the British Household Panel Survey (BHPS)

The motivation of this paper is to investigate the characteristics of the British labour force, using data from the British Household Panel Survey (BHPS). The goal is to examine whether there are statistically significant differences between the unemployed and non-participants, as well as inside each of the two groups, considering their transitions in the job market. Using logistic regression for a pooled cross-section time-series sample of employed as well as non-employed persons, three different Out of Work subgroups are identified: Seeking Out of Work, Attached Out of Work, and Voluntary Out of Work. The first group can be broadly assimilated to the official definition of unemployment, International Labour Organization unemployment, whereas all the others are usually classified as economically inactive. Nonetheless, the last two groups are characterized by significantly different transition rates, showing a behaviourally distinct attitude in their labour market dynamics. This result points out that the aggregate non-employment has several dimensions, which are not caught by the distinction between unemployment and economic inactivity, and should be accounted for by policy makers and researchers.