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Unemployment Duration: Competing and Defective Risks

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Author Info

  • Addison, John T.

    ()
    (University of South Carolina)

  • Portugal, Pedro

    ()
    (Banco de Portugal)

Abstract

This paper examines the determinants of unemployment duration in a competing risks framework with two destination states, namely, inactivity and employment. The major innovation is our recognition of defective risks. We first use a polynomial hazard function to test for the presence of two-sources of defective risks: search involving a random process of unlucky draws that yields a non-proper duration distribution; and a split-population model in which the decision by some individuals not to consider certain destination states produces a defective distribution. Having established the primacy of the latter model, we refine it using a more flexible piecewise-constant baseline hazard function. This specification broadly confirms our earlier findings but offers a more convincing explanation for positive and zero transition rates out of unemployment. Although we do not reject the null of proportionality, abandoning the proportionality assumption does not materially alter our conclusions.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 350.

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Length: 51 pages
Date of creation: Aug 2001
Date of revision:
Publication status: published in: Journal of Human Resources, 2003, 38 (1), 156-191
Handle: RePEc:iza:izadps:dp350

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Keywords: unemployment duration; competing risks; defective risks; non-proper distribution; split-population model;

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References

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  1. Schmidt, Peter & Witte, Ann Dryden, 1989. "Predicting criminal recidivism using 'split population' survival time models," Journal of Econometrics, Elsevier, vol. 40(1), pages 141-159, January.
  2. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  3. Fallick, Bruce Chelimsky, 1991. "Unemployment Insurance and the Rate of Re-employment of Displaced Workers," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 228-35, May.
  4. Lars Ljungqvist & Thomas J. Sargent, 1995. "The European unemployment dilemma," Working Paper Series, Macroeconomic Issues 95-17, Federal Reserve Bank of Chicago.
  5. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
  6. Olivier Blanchard & Pedro Portugal, 1998. "What Hides Behind An Unemployment Rate: Comparing Portuguese and Us Unemployment," Working Papers w199803, Banco de Portugal, Economics and Research Department.
  7. Olivier Jean Blanchard & Peter Diamond, 1990. "Ranking, Unemployment Duration, and Wages," NBER Working Papers 3387, National Bureau of Economic Research, Inc.
  8. Olympia Bover & Pilar García-Perea & Pedro Portugal, 2000. "Labour market outliers: Lessons from Portugal and Spain," Economic Policy, CEPR & CES & MSH, vol. 15(31), pages 379-428, October.
  9. Narendranathan, W. & Stewart, M.B., 1989. "Modelling The Probability Of Leaving Unemployment: Competing Risks Models With Flexible Baseline Hazards," The Warwick Economics Research Paper Series (TWERPS) 331, University of Warwick, Department of Economics.
  10. Pudney, Stephen & Thomas, Jonathan, 1995. "Specification Tests for the Competing Risks Duration Model: An Application to Unemployment Duration and Sectoral Movement," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(3), pages 323-47, August.
  11. Addison, John T. & Portugal, Pedro, 1998. "Job Search Methods and Outcomes," ZEW Discussion Papers 98-41, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  12. Portugal, Pedro & Addison, John T, 1995. "Short- and Long-Term Unemployment. A Parametric Model with Time-Varying Effects," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(2), pages 205-27, May.
  13. Flinn, Christopher J & Heckman, James J, 1983. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 28-42, January.
  14. Christopher J. Flinn & James J. Heckman, 1982. "Models for the Analysis of Labor Force Dynamics," NBER Working Papers 0857, National Bureau of Economic Research, Inc.
  15. Christopher J. Flinn, 1986. "Econometric Analysis of CPS-Type Unemployment Data," Journal of Human Resources, University of Wisconsin Press, vol. 21(4), pages 456-484.
  16. Han, Aaron & Hausman, Jerry A, 1990. "Flexible Parametric Estimation of Duration and Competing Risk Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(1), pages 1-28, January-M.
  17. Bart L. W. Cockx, 2000. "Analysis Of Transition Data By The Minimum-Chi-Square Method: An Application To Welfare Spells In Belgium," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 392-405, August.
  18. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  19. Ridder, Geert & van den Berg, Gerard J., 2002. "A cross-country comparison of labor market frictions," Working Paper Series 2002:22, IFAU - Institute for Evaluation of Labour Market and Education Policy.
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