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Labour Market Signalling and Unemployment Duration: An Empirical Analysis Using Employer-Employee Data

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Author Info

  • Frederiksen, Anders

    ()
    (Aarhus University)

  • Ibsen, Rikke

    ()
    (Aarhus School of Business)

  • Rosholm, Michael

    ()
    (Aarhus University)

  • Westergård-Nielsen, Niels C.

    ()
    (Copenhagen Business School)

Abstract

This paper tests the signalling hypothesis using detailed flow-based employer-employee data from Denmark. The primary focus is to explore how the conditions in the pre-displacement firm affect the duration of unemployment. The empirical analysis is conducted within a competing risk framework, with destinations into reemployment and inactivity, which yields more plausible estimates of the signalling effect. It is established that the positive ability signal of being displaced due to a plant closure is significant but also that the signal of displacement from severe downsizing is important. Issues that have previously been ignored in the empirical analysis of the signalling hypothesis such as local labour market conditions, the sector of employment and the duration of the previous employment match are established to be important determinants for the time spent in unemployment. The heterogeneity of the signalling effect across various employee subgroups in the economy is also explored. These findings emphasize that individuals’ reemployment prospects are heavily influenced by the labour market history and in particular by the conditions in the firms in which they were previously employed.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2132.

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Length: 29 pages
Date of creation: May 2006
Date of revision:
Publication status: published in: Economic Letters, 2013, 118 (1), 84-86
Handle: RePEc:iza:izadps:dp2132

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Keywords: plant closure; unemployment duration; signalling;

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References

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  1. Narendranathan, W & Stewart, Mark B, 1993. "How Does the Benefit Effect Vary as Unemployment Spells Lengthen?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 361-81, Oct.-Dec..
  2. David Card & Daniel Sullivan, 1987. "Measuring the Effect of Subsidized Training Programs on Movements In andOut of Employment," NBER Working Papers 2173, National Bureau of Economic Research, Inc.
  3. Anders Frederiksen & Elod Takats, 2005. "Layoffs as Part of an Optimal Incentive Mix: Theory and Evidence," Working Papers 881, Princeton University, Department of Economics, Industrial Relations Section..
  4. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "Job reallocation, employment fluctuations and unemployment," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 18, pages 1171-1228 Elsevier.
  5. Neal, Derek, 1995. "Industry-Specific Human Capital: Evidence from Displaced Workers," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 653-77, October.
  6. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  7. Gibbons, R. & Katz, L.F., 1989. "Layoffs And Lemons," Working papers 531, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Farber, Henry S, 1994. "The Analysis of Interfirm Worker Mobility," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 554-93, October.
  9. Denise J. Doiron, 1995. "Lay-Offs as Signals: The Canadian Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 899-913, November.
  10. James J. Heckman, 1981. "Heterogeneity and State Dependence," NBER Chapters, in: Studies in Labor Markets, pages 91-140 National Bureau of Economic Research, Inc.
  11. Heckman, James J & Borjas, George J, 1980. "Does Unemployment Cause Future Unemployment? Definitions, Questions and Answers from a Continuous Time Model of Heterogeneity and State Dependence," Economica, London School of Economics and Political Science, vol. 47(187), pages 247-83, August.
  12. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  13. Frederiksen, Anders & Westergaard-Nielsen, Niels, 2007. "Where did they go? Modelling transitions out of jobs," Labour Economics, Elsevier, vol. 14(5), pages 811-828, October.
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Cited by:
  1. Jukka Appelqvist, 2007. "Wage and Earnings Losses of Displaced Workers in Finland," Discussion Papers 422, Government Institute for Economic Research Finland (VATT).
  2. Darja Boršič & Alenka Kavkler, 2009. "Modeling Unemployment Duration in Slovenia using Cox Regression Models," Transition Studies Review, Springer, vol. 16(1), pages 145-156, May.

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