This paper aims to analyse the effect of disability on participation in the labour force, using the Irish component of the European Community Household Panel Survey 1995-2000. A range of panel models are considered, but to allow for any unobserved influences or state dependence in labour force participation, our preferred model is a dynamic panel model. We show how the estimates of current disability are changed once we control for the effect of past disability and previous participation. We compare base estimates of disability with those controlling for unobserved heterogeneity and past participation. The results suggest that the base effect of disability is overestimated by between 40-60% for men and by 5-10% for women.
(c) 2005 John Wiley & Sons, Ltd.