Failing to take into account the initial condition problem will lead to overstating the level of state dependence. Indeed, controlling for initial labour market status, demographic characteristics and hoasehold income leads to large drops in the coefficients of the lagged labour market status. This indicates that not controlling for initial conditions would seriously bias the estimates. The coefficients for NSW at time t-1 should be interpreted as the difference in the likelihood of being in standard work at wave t as compared with being unemployed at t-1.