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A Structural Non-Stationary Model of Job Search: Stigmatization of the Unemployed by Job Offers or Wage Offers?

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Author Info
Lollivier, Stefan
Rioux, Laurence
Abstract

We develop a structural non-stationary model of job search in the fashion of van den Berg (1990). Non-stationarity comes from the duration-dependence in benefits, in the arrival rate of job offers, and in wage offers. The model is then estimated using the French sample of the ECHP Survey (1994-2000). This data set provides the variables required to identify the model (reservation wages, job offers arrival rate, accepted wages and rejected wages) and allows us to reconstruct the ‘true’ monthly sequence of benefits for each unemployed worker. We find that duration-dependence in job offers is quite limited: the arrival rate of job offers is exactly the same after two years of unemployment than at the beginning of the spell. Duration dependence in wage offers is slightly more pronounced: wages are decreasing during the first two years of unemployment. Nevertheless the most important fall is observed at the beginning of the spell. We also find that the former employed in temporary jobs are more sensitive to duration than the other unemployed. Then we simulate the effects, on the expected duration of unemployment, of different reforms of the unemployment compensation system. The expected duration of unemployment goes from 14.01 months to 14.35 months (i.e. +2.42%) when the level of UI benefit is raised by 14% (reform A). Replacing a declining time sequence by a flat profile (reform B) lengthens the spell of unemployment by 1.39 months (+9.92%). The impact is dramatic on the subset of former high-wage workers, whose unemployment duration is raised by 3.92 months (+24.48%). Compared with reform B, the imposition of sanctions shortens substantially unemployment duration, which goes from 15.4 months to 13.15 months (-14.61%). Once more, the effect is stronger on the subset of former high-wage workers, whose unemployment duration is decreased by 6.15 months (-30.85%). Finally, a 3-month increase in the maximum duration of UI entitlement has a quite limited impact on unemployment duration.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5108.

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Date of creation: Jun 2005
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Handle: RePEc:cpr:ceprdp:5108

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Related research
Keywords: insurance job search reservation wages unemployment duration

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Find related papers by JEL classification:
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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  2. Eckstein, Zvi & Wolpin, Kenneth I, 1995. "Duration to First Job and the Return to Schooling: Estimates from a Search-Matching Model," Review of Economic Studies, Blackwell Publishing, vol. 62(2), pages 263-86, April. [Downloadable!] (restricted)
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    Other versions:
  4. Boone, Jan & Fredriksson, Peter & Holmlund, Bertil & van Ours, Jan C., 2001. "Optimal Unemployment Insurance with Monitoring and Sanctions," IZA Discussion Papers 401, Institute for the Study of Labor (IZA). [Downloadable!]
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  5. Petrongolo, Barbara & Pissarides, Christopher, 2002. "Scale Effects in Markets with Search," CEPR Discussion Papers 3648, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Jaap H. Abbring & Gerard J. Berg & Jan C. Ours, 2005. "The Effect of Unemployment Insurance Sanctions on the Transition Rate from Unemployment to Employment," Economic Journal, Royal Economic Society, vol. 115(505), pages 602-630, 07. [Downloadable!] (restricted)
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  7. Cases, C. & Lollivier, S., 1993. "A Structural Model of Transition from Unemployment with Multiple Issues," Papers 9332, Institut National de la Statistique et des Etudes Economiques-.
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  11. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December. [Downloadable!] (restricted)
  12. Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 370-99, April. [Downloadable!] (restricted)
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  13. Jones, Stephen R G, 1988. "The Relationship between Unemployment Spells and Reservation Wages as a Test of Search Theory," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 741-65, November. [Downloadable!] (restricted)
  14. B. Dormont & D. Fougère & A. Prieto, 2001. "L'effet de l'allocation unique dégressive sur la reprise d'emploi," THEMA Working Papers 2001-05, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  15. Narendranathan, W & Nickell, S & Stern, J, 1985. "Unemployment Benefits Revisited," Economic Journal, Royal Economic Society, vol. 95(378), pages 307-29, June. [Downloadable!] (restricted)
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  17. Dale Mortensen, 1984. "Job Search and Labor Market Analysis," Discussion Papers 594, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  18. Cahuc, Pierre & Lehmann, Etienne, 2000. "Should unemployment benefits decrease with the unemployment spell?," Journal of Public Economics, Elsevier, vol. 77(1), pages 135-153, July. [Downloadable!] (restricted)
  19. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November. [Downloadable!] (restricted)
  20. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
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  21. Narendranathan, Wiji & Nickell, Stephen, 1985. "Modelling the process of job search," Journal of Econometrics, Elsevier, vol. 28(1), pages 29-49, April. [Downloadable!] (restricted)
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