Continuous-time Markov chain in labor market theory: The case of United Kingdom

Abstract

In this paper, the claim that the sojourn times in the UK labor market follow a continuous-time Markov model is investigated. It means that they are independent random variables and mainly they control how rapidly transits take place. In this case sojourn times in a state before they transit another state are exponentially distributed with an appropriate parameter λ_i.
The labor market model presented in this paper is based on Markov process techniques and have been developed in Wolfram Mathematica 9. The model allows us to calculate the long-run proportion of workers transitions, first-passage time and the transition state probabilities. These parameters are then used to detect labour market failures and accordingly propose policies and procedures that Government can use to build a more efficient labour market and increase employability.