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The anatomy of unemployment dynamics

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  • Abbring, Jaap H.
  • van den Berg, Gerard J.
  • van Ours, Jan C.

Abstract

This paper examines the relation between individual unemployment durations and incidence on the one hand, and the time-varying macroeconomic conditions in the economy on the other. We allow for calendar time effects acting on the exit probabilities for all currently unemployed. We also allow for the composition of the inflow into unemployment to depend on calendar time at the moment of inflow. In both cases we distinguish between business cycle effects and seasonal effects. We apply the model to aggregate unemployment duration data, in which we allow for unobserved heterogeneity and correlated measurement errors. We do not make parametric assumptions on the genuine duration dependence pattern or the unobserved heterogeneity distribution. The results enable us to give a complete decomposition of the dynamics of unemployment over calendar time. This is also used to test the popular ranking model of unemployment.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 46 (2002)
Issue (Month): 10 (December)
Pages: 1785-1824

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Handle: RePEc:eee:eecrev:v:46:y:2002:i:10:p:1785-1824

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References

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  1. Abbring, Jaap H & van den Berg, Gerard J & van Ours, Jan C, 1995. "The Anatomy of Unemployment Dynamics," CEPR Discussion Papers 1202, C.E.P.R. Discussion Papers.
  2. Baker, Michael, 1992. "Unemployment Duration: Compositional Effects and Cyclical Variability," American Economic Review, American Economic Association, vol. 82(1), pages 313-21, March.
  3. Berg, G.J. & Ours, J.C., 1994. "Eyeball tests for state dependence and unobserved heterogeneity in aggregate unemployment duration data," Serie Research Memoranda 0009, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  4. van den Berg, Gerard J & van Ours, Jan C, 1996. "Unemployment Dynamics and Duration Dependence," Journal of Labor Economics, University of Chicago Press, vol. 14(1), pages 100-125, January.
  5. Van den Berg, G J & Lindeboom, M & Ridder, G, 1994. "Attrition in Longitudinal Panel Data and the Empirical Analysis of Dynamic Labour Market Behaviour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(4), pages 421-35, Oct.-Dec..
  6. Blanchard, Olivier Jean & Diamond, Peter A, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 417-34, July.
  7. Olivier Jean Blanchard, 1991. "Wage Bargaining and Unemployment Persistence," NBER Working Papers 3664, National Bureau of Economic Research, Inc.
  8. Deaton, A.S. & Paxson, C.H., 1992. "Saving, Growth, and Aging in Taiwan," Papers 161, Princeton, Woodrow Wilson School - Development Studies.
  9. Joel L. Horowitz, 1999. "Semiparametric Estimation of a Proportional Hazard Model with Unobserved Heterogeneity," Econometrica, Econometric Society, vol. 67(5), pages 1001-1028, September.
  10. Darby, Michael R & Haltiwanger, John C & Plant, Mark W, 1985. "Unemployment Rate Dynamics and Persistent Unemployment under Rational Expectations," American Economic Review, American Economic Association, vol. 75(4), pages 614-37, September.
  11. Abbring, Jaap H & van den Berg, Gerard J & van Ours, Jan C, 1997. "Business Cycles and Compositional Variation in US Unemployment," CEPR Discussion Papers 1702, C.E.P.R. Discussion Papers.
  12. Melino, Angelo & Sueyoshi, Glenn T., 1990. "A simple approach to the identifiability of the proportional hazards model," Economics Letters, Elsevier, vol. 33(1), pages 63-68, May.
  13. Butler, Richard J & McDonald, James B, 1986. "Trends in Unemployment Duration Data," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 545-57, November.
  14. Vishwanath, Tara, 1989. "Job Search, Stigma Effect, and Escape Rate from Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 487-502, October.
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  16. Berg, G.J. van den, 1987. "Nonstationarity in job search theory," Research Memorandum 242, Tilburg University, Faculty of Economics and Business Administration.
  17. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-67, June.
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  19. Berg, G. van den & Ours, J.C. van, 1996. "Unemployment dynamics and duration dependence," Open Access publications from Tilburg University urn:nbn:nl:ui:12-86874, Tilburg University.
  20. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
  21. Ours, J.C. van & Berg, G. van den, 1997. "Eyeballing state dependence and unobserved heterogeneity in aggregate unemployment duration data," Open Access publications from Tilburg University urn:nbn:nl:ui:12-86869, Tilburg University.
  22. van den Berg, Gerard J & van Ours, Jan C, 1994. "Unemployment Dynamics and Duration Dependence in France, the Netherlands and the United Kingdom," Economic Journal, Royal Economic Society, vol. 104(423), pages 432-43, March.
  23. Baker, Michael, 1992. "Digit preference in CPS unemployment data," Economics Letters, Elsevier, vol. 39(1), pages 117-121, May.
  24. Elbers, Chris & Ridder, Geert, 1982. "True and Spurious Duration Dependence: The Identifiability of the Proportional Hazard Model," Review of Economic Studies, Wiley Blackwell, vol. 49(3), pages 403-09, July.
  25. Jackman, Richard & Layard, Richard, 1991. "Does Long-term Unemployment Reduce a Person's Chance of a Job? A Time-Series Test," Economica, London School of Economics and Political Science, vol. 58(229), pages 93-106, February.
  26. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
  27. van den Berg, Gerard J, 1994. "The Effects of Changes of the Job Offer Arrival Rate on the Duration of Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 478-98, July.
  28. Dynarski, Mark & Sheffrin, Steven M, 1990. "The Behavior of Unemployment Durations over the Cycle," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 350-56, May.
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