Individuals' Unemployment Durations over the Business Cycle

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Individuals' Unemployment Durations over the Business Cycle

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Kalwij, Adriaan S. () (Department of Economics, University of Oxford and IZA, Bonn)

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Adriaan Kalwij

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

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Length: 25 pages
Date of creation: Sep 2001
Date of revision:
Handle: RePEc:iza:izadps:dp369

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Find related papers by JEL classification:
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

This paper has been announced in the following NEP Reports:

NEP-ALL-2001-10-16 (All new papers)
NEP-LAB-2001-10-16 (Labour Economics)

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.:

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Other versions:
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Other versions:
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Full references

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.)

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., vol. 20(1), pages 1-23. [Downloadable!]
Other versions:
- Cockx, Bart & Dejemeppe, Muriel, 2002. "Duration Dependence in the Exit Rate out of Unemployment in Belgium: Is It True or Spurious?," IZA Discussion Papers 632, Institute for the Study of Labor (IZA). [Downloadable!]
Knut Roed & Tao Zhang, 2003. "Does Unemployment Compensation Affect Unemployment Duration?," Economic Journal, Royal Economic Society, vol. 113(484), pages 190-206, January. [Downloadable!] (restricted)
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) 2002019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
Turon, Hélène, 2003. "Separability of Duration Dependence and Unobserved Heterogeneity," IZA Discussion Papers 754, Institute for the Study of Labor (IZA). [Downloadable!]

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