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Duration Dependence and Composition in Unemployment Spells

Author

Listed:
  • James D. Eubanks
  • David Wiczer

Abstract

This article reviews the evidence for duration dependence in job-finding rates and its implications for the unemployment duration distribution. The authors document duration dependence and show that it exists within nearly every demographic subgroup. Then, they examine the implications of duration dependence on unemployment duration, emphasizing that a uniform job-finding rate that does not incorporate duration dependence understates unemployment duration. Finally, they explore a composition-based approach to duration dependence, where they solve for the distribution of preexisting heterogeneity that is consistent with observed duration dependence. The authors look at how this distribution varies cyclically and, in particular, during the Great Recession. The largest changes occur at the low finding-rate tail of this distribution.

Suggested Citation

  • James D. Eubanks & David Wiczer, 2016. "Duration Dependence and Composition in Unemployment Spells," Review, Federal Reserve Bank of St. Louis, vol. 98(4), pages 263-276.
  • Handle: RePEc:fip:fedlrv:00064
    DOI: 10.20955/r.2016.263-276
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    File URL: http://dx.doi.org/10.20955/r.2016.263-276
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    References listed on IDEAS

    as
    1. Gary Solon & Ryan Michaels & Michael W. L. Elsby, 2009. "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 84-110, January.
    2. Heckman, James J. & Singer, Burton, 1984. "Econometric duration analysis," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 63-132.
    3. David Wiczer, 2013. "Long-term Unemployment: Attached and Mismatched?," 2013 Meeting Papers 1101, Society for Economic Dynamics.
    4. Robert Shimer, 2012. "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 127-148, April.
    5. Heckman, James J, 1991. "Identifying the Hand of the Past: Distinguishing State Dependence from Heterogeneity," American Economic Review, American Economic Association, vol. 81(2), pages 75-79, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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