This paper tests the hypothesis that the classifications "unemployed" and "out of the labor force" are behaviorally meaningless distinctions. This hypothesis is rejected. Distinct behavioral equations govern transitions from out of the labor force to employment and from unemployment to employment. The evidence reported in this paper is broadly consistent with versions of search theory in which unemployment is a state that facilitates the job search process. In an Appendix, we demonstrate that log concavity of the wage-offer distribution implies that the exit rate from unemployment is an increasing function of the rate of arrival of job offers.

Life-cycle models of training/working that allow a leisure/effort trade-off are examined. A two-stage maximization problem is proposed encompassing models previously studied. In one stage, preferences are maximized by selecting a lifetime plan of consumption, leisure, and nonleisure subject to a budget constraint involving a conditional earnings function. In the other stage, the conditional earnings function is maximized by selecting a training and working plan. A new feature is the introduction of a technology, transforming stocks of human capital into leisure/effort efficiency units. Empirical predictions and conditions disallowing a two-stage separation are discussed.

Past attempts to estimate the magnitude of compensating wage differentials have been hindered by the biasing effects of omitted variables and measurement error. We argue that a wage change formulation, estimated with panel data that contain worker reports of their own job characteristics, reduces both of these biases. Our empirical results, based on a large panel of workers in Sweden, confirm these conjectures by giving many more reasonable coefficient estimates for a wage change equation than for a wage level formulation.