This paper lays out the theory of a three-state model of labor supply (job, unemployed, and out of the labor force) in full detail – stationary and non-stationary, discrete and continuous time. Proves existence and uniqueness of the value function. Not much on estimation or identification.
“A Dynamic Model of Labor Supply Under Uncertainty 1981” T. Coleman and J. Heckman 1981 (pdf).
About Thomas Coleman
Thomas S. Coleman is Senior Advisor at the Becker Friedman Institute for Research in Economics and Adjunct Professor of Finance at the Booth School of Business at the University of Chicago. Prior to returning to academia, Mr. Coleman worked in the finance industry for more than twenty years with considerable experience in trading, risk management, and quantitative modeling. Mr. Coleman earned a PhD in economics from the University of Chicago and a BA in physics from Harvard College.
