This paper has been presented at the Journal of Applied Econometrics International Conference on the Micro-Econometrics of Dynamic Decision Making, inTilburg, May 1994. We would like to thank John Rust, Arie Kapteyn and other participants at this conference for their helpful comments. This researchwas sponsored by the Economics Research Foundation, which is part of the Netherlands Organization for Scientific Research (NWO). Gerard J. van den Bergacknowledges the Royal Netherlands Academy of Arts and Sciences for financial support. The Organization for Strategic Labour Market Research (OSA)allowed us to use the OSA panel data.