A Markov chain model of working life tables

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Abstract
A working life table is a basic tool in the analysis and projection of labor force mobility and participation. The columns of the working life table reflect the dynamics of individual labor force entries and exits. They are essential for the detailed analysis of work-force progression, trends of retirement, and educational planning. The working life table is required also for the calculation of the money-value of an individual. Summary measures are provided through the columns of work life expectancy, which figure prominently in comparisons of different levels of economic and social development, both over time and across populations. Traditional methods for the construction of tables of working life are based on assumptions some of which are at variance with reality (a unimodal curve of labor force participation by age and a single lifetime entry and exit from the labor force). A new method of construction is proposed in the present paper. The method is based on the theory of Markov chains with continuous time, and it relies on data on labor force mobility (gross labor force flows) instead of on data on labor force status like traditional techniques. The new method requires fewer assumptions than before and gives a richer and more realistic impression of labor force mobility. It is demonstrated empirically with data for males from a set of Danish panel labor force surveys from 1972–74. Actuaries may recognise the basic model of the new method as one which can be used in connection with disability insurance as well.

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