Wiji Arulampalam () (Economics Department, University of Warwick, UK) Alison Booth () (Institute for Social and Economic Research, University of Essex, UK) Mark P. Taylor () (Institute for Social and Economic Research, University of Essex, UK)
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We estimate dynamic panel data models of unemployment incidence of British men, in order to disentangle the effects of unobserved individual heterogeneity and true state dependence. We also control for the 'initial conditions' problem that arises when the start of the observation period does not coincide with the start of the stochastic process generating individuals' unemployment experiences. Our data set is the new British Household Panel Survey for the period 1991-5. We find strong evidence of state dependence, especially for more mature men (defined as those aged 25 and over in 1991). This finding is consistent with the 'scarring' theory of unemployment - an individual's previous unemployment experience has implications for his future labour market experience, perhaps because of depreciation of human capital, or because employers use an individual's previous labour market history as a screening mechanism, or because unemployed workers are more likely to accept low quality jobs characterised by high rates of job destruction. Our finding of genuine state dependence for adult men suggests that policies reducing short run unemployment incidence will have longer-run effects by reducing the equilibrium or natural rate of unemployment.
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Paper provided by Institute for Labour Research in its series ILR working papers with number
019.
Length: 34 Date of creation: Feb 1998 Date of revision: Handle: RePEc:esl:ilrdps:019
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Find related papers by JEL classification: C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
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