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Individuals' Unemployment Durations over the Business Cycle

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  • Kalwij, Adriaan

    ()
    (Utrecht School of Economics)

Abstract

Using a large panel of administrative records this study confirms the predictions of the ranking model of Blanchard and Diamond (1994) that an individual’s probability of leaving unemployment decreases with unemployment duration and increases with economic growth. However, the ranking model of Blanchard and Diamond (1994) makes the further prediction that negative genuine duration dependence will be stronger the more depressed the labour market. In conflict with this prediction this study provides persuasive empirical evidence that the pattern of negative genuine duration dependence does not change over the business cycle. Moreover it is shown that the finding in previous studies that negative genuine duration dependence becomes stronger the more depressed the labour market arises from failure to control for cyclical fluctuations in the composition of the newly unemployed. This finding carries a strong warning for policy assessment: unless controlled for cyclical fluctuations in the composition of the newly unemployed an evaluation of a policy designed to get the long-term unemployed into work will be biased towards a success in times of high economic growth and towards a failure in times of low economic growth.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 369.

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Length: 26 pages
Date of creation: Sep 2001
Date of revision:
Handle: RePEc:iza:izadps:dp369

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Keywords: Unemployment; duration model; business cycles;

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References

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  1. Guido W. Imbens & Lisa M. Lynch, 1993. "Re-Employment Probabilities over the Business Cycle," NBER Working Papers 4585, National Bureau of Economic Research, Inc.
  2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198284345, October.
  3. Lawrence F. Katz, 1996. "Wage Subsidies for the Disadvantaged," NBER Working Papers 5679, National Bureau of Economic Research, Inc.
  4. Abbring, Jaap H & van den Berg, Gerard J & van Ours, Jan C, 1997. "Business Cycles and Compositional Variation in US Unemployment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1702, C.E.P.R. Discussion Papers.
  5. Olivier Jean Blanchard & Peter Diamond, 1990. "Ranking, Unemployment Duration, and Wages," NBER Working Papers 3387, National Bureau of Economic Research, Inc.
  6. Michael R. Darby & John Haltiwanger & Mark Plant, 1984. "Unemployment-Rate Dynamics and Persistent Unemployment Under RAtional Expectations," UCLA Economics Working Papers, UCLA Department of Economics 339, UCLA Department of Economics.
  7. Imbens, G W, 1994. "Transition Models in a Non-stationary Environment," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 703-20, November.
  8. Dynarski, Mark & Sheffrin, Steven M, 1990. "The Behavior of Unemployment Durations over the Cycle," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 350-56, May.
  9. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, Econometric Society, vol. 47(4), pages 939-56, July.
  10. Huh, Keun & Sickles, Robin C, 1994. "Estimation of the Duration Model by Nonparametric Maximum Likelihood, Maximum Penalized Likelihood, and Probability Simulators," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 683-94, November.
  11. Layard, Richard & Nickell, Stephen, 1986. "Unemployment in Britain," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 53(210(S)), pages S121-69, Supplemen.
  12. Brian Bell & Richard Blundell & John Van Reenen, 1999. "Getting the unemployed back to work: the role of targeted wage subsidies," IFS Working Papers, Institute for Fiscal Studies W99/12, Institute for Fiscal Studies.
  13. Salant, Stephen W, 1977. "Search Theory and Duration Data: A Theory of Sorts," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 91(1), pages 39-57, February.
  14. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, Econometric Society, vol. 52(2), pages 271-320, March.
  15. van den Berg, Gerard J & van Ours, Jan C, 1994. "Unemployment Dynamics and Duration Dependence in France, the Netherlands and the United Kingdom," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(423), pages 432-43, March.
  16. Butler, Richard J & McDonald, James B, 1986. "Trends in Unemployment Duration Data," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 545-57, November.
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Cited by:
  1. Turon, Hélène, 2003. "Separability of Duration Dependence and Unobserved Heterogeneity," IZA Discussion Papers 754, Institute for the Study of Labor (IZA).
  2. Adriaan Kalwij, 2010. "Unemployment durations and the pattern of duration dependence over the business cycle of British males," Empirical Economics, Springer, Springer, vol. 38(2), pages 429-456, April.
  3. Muriel Dejemeppe & Bart Cockx, 2005. "Duration dependence in the exit rate out of unemployment in Belgium. Is it true or spurious?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(1), pages 1-23.
  4. Knut Roed & Tao Zhang, 2003. "Does Unemployment Compensation Affect Unemployment Duration?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(484), pages 190-206, January.
  5. Muriel Dejemeppe & Yves Saks, 2002. "A New Light into Regional Unemployment Disparities in Belgium : Longitudinal Analysis of Grouped Duration Data," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2002019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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