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Why did the average duration of unemployment become so much longer?

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  • Toshihiko Mukoyama
  • Aysegül Sahin

Abstract

This paper examines the causes of the observed increase in the average duration of unemployment over the past thirty years. First we analyze whether changes in the demographic composition of the U.S. labor force, particularly the age and gender composition, can explain this increase. We then consider the contribution of institutional changes, such as the change in the generosity and coverage of unemployment insurance. We find that changes in the composition of the labor force and institutional changes can only partially account for the longer duration of unemployment. We construct a job search model and calibrate it to U.S. data. The results indicate that more than 70 percent of the increase in the duration of unemployment over the past thirty years can be attributed to an increase in within-group wage inequality.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 194.

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Date of creation: 2004
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Handle: RePEc:fip:fednsr:194

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Keywords: Unemployment ; Labor market ; Demography ; Unemployment insurance;

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References

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  1. Baker, Michael, 1992. "Unemployment Duration: Compositional Effects and Cyclical Variability," American Economic Review, American Economic Association, vol. 82(1), pages 313-21, March.
  2. Gary Burtless, 1983. "Why Is Insured Unemployment So Low?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 225-254.
  3. Toshihiko Mukoyama & Aysegül Sahin, 2004. "Why did the average duration of unemployment become so much longer?," Staff Reports 194, Federal Reserve Bank of New York.
  4. Violante, Giovanni L, 2001. "Technological Acceleration, Skill Transferability and the Rise in Residual Inequality," CEPR Discussion Papers 2765, C.E.P.R. Discussion Papers.
  5. Katherine Baicker & Claudia Goldin & Lawrence F. Katz, 1997. "A Distinctive System: Origins and Impact of U.S. Unemployment Compensation," NBER Working Papers 5889, National Bureau of Economic Research, Inc.
  6. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
  7. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
  8. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  9. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Trends in U.S. Wage Inequality: Re-Assessing the Revisionists," NBER Working Papers 11627, National Bureau of Economic Research, Inc.
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  12. Thomas Lemieux, 2007. "The Changing Nature of Wage Inequality," NBER Working Papers 13523, National Bureau of Economic Research, Inc.
  13. José Ferreira Machado & Pedro Portugal & Juliana Guimarães, 2006. "U.S. Unemployment Duration: Has Long Become Longer or Short Become Shorter?," Working Papers w200613, Banco de Portugal, Economics and Research Department.
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  19. Robert Shimer, 1999. "Why is the U.S. Unemployment Rate So Much Lower?," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 11-74 National Bureau of Economic Research, Inc.
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  23. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
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  26. Wolpin, Kenneth I, 1987. "Estimating a Structural Search Model: The Transition from School to Work," Econometrica, Econometric Society, vol. 55(4), pages 801-17, July.
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Citations

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Cited by:
  1. José Ferreira Machado & Pedro Portugal & Juliana Guimarães, 2006. "U.S. Unemployment Duration: Has Long Become Longer or Short Become Shorter?," Working Papers w200613, Banco de Portugal, Economics and Research Department.
  2. Shigeru Fujita, 2011. "Declining labor turnover and turbulence," Working Papers 11-44, Federal Reserve Bank of Philadelphia.
  3. Ronald Bachmann & Mathias Sinning, 2011. "Decomposing the Ins and Outs of Cyclical Unemployment," Ruhr Economic Papers 0305, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  4. Toshihiko Mukoyama & Aysegül Sahin, 2004. "Why did the average duration of unemployment become so much longer?," Staff Reports 194, Federal Reserve Bank of New York.
  5. Mukoyama, Toshihiko, 2013. "Understanding the welfare effects of unemployment insurance policy in general equilibrium," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 347-368.
  6. Daniel Aaronson & Bhashkar Mazumder & Shani Schechter, 2010. "What is behind the rise in long-term unemployment?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 28-51.
  7. Thomas B. King, 2005. "Labor productivity and job-market flows: trends, cycles, and correlations," Supervisory Policy Analysis Working Papers 2005-04, Federal Reserve Bank of St. Louis.
  8. Céspedes, Nikita & Gutiérrez, Ana Paola & Belapatiño, Vanessa, 2013. "Determinantes de la duración del desempleo en una economía con alta informalidad," Working Papers 2013-022, Banco Central de Reserva del Perú.
  9. Della Lee Sue, 2008. "Unemployment Index: A Multidimensional Measure of Labor Market Efficiency," New York Economic Review, New York State Economics Association (NYSEA), vol. 39(1), pages 44-69.

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