Social exclusion and labour market transitions: a multi-state multi-spell analysis using the BHPS

Social exclusion is an important economic, political and social problem that renders a substantial proportion of the population disadvantaged, disenfranchised and disaffected. Our aim in this empirical paper is to assess how social exclusion arises in the context of labour market transition behaviour, and to analyse the determinants of exclusion. To do this we estimate a multi-state multi-spell competing risks model and identify five states: high skilled employment, intermediate skilled employment, low skilled employment, unemployment and out of the labour market. The data used for estimating our model is the first seven waves of the British Household Panel Survey which refers to the period 1992-97. Our findings show that there are a substantial number of workers trapped in a vicious circle of low skilled employment, unemployment and inactivity. This group are more likely to suffer social exclusion. The paper also makes a technical contribution by proposing a test for collapsing states, and overcomes the problems