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

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Author Info
Anders Frederiksen () (CCP, Aarhus School of Business and IZA Bonn)
Rikke Ibsen () (CCP, Aarhus School of Business)
Michael Rosholm () (University of Aarhus, AKF Copenhagen and IZA Bonn)
Niels Westergaard-Nielsen () (CCP, Aarhus School of Business and IZA Bonn)

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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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Publisher 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
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Handle: RePEc:iza:izadps:dp2132

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Related research
Keywords: unemployment duration; signalling; plant closure;

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
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Anders Frederiksen & Elõd Takáts, 2006. "Layoffs as Part of an Optimal Incentive Mix: Theory and Evidence," MNB Working Papers 2006/2, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
    Other versions:
  2. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July. [Downloadable!] (restricted)
    Other versions:
  3. Gibbons, Robert & Katz, Lawrence F, 1991. "Layoffs and Lemons," Journal of Labor Economics, University of Chicago Press, vol. 9(4), pages 351-80, October. [Downloadable!] (restricted)
    Other versions:
  4. 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. [Downloadable!] (restricted)
  5. 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.. [Downloadable!] (restricted)
  6. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier. [Downloadable!] (restricted)
    Other versions:
  7. 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. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jukka Appelqvist, 2007. "Wage and Earnings Losses of Displaced Workers in Finland," Discussion Papers 422, Government Institute for Economic Research Finland (VATT). [Downloadable!]
  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. [Downloadable!] (restricted)
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