IDEAS home Printed from
   My bibliography  Save this article

Household Level Economic Incentives, Unemployment Trap and Job Finding Probability


  • Pasi Holm
  • Tomi Kyyrä
  • Juha Rantala


This paper considers the sensitivity of the household's disposable income with respect to the labour market states and the labour market transitions of unemployed workers. The paper analyses the following questions: (i) which are the determinants of starting wages? (ii) how many unemployed are in the unemployment trap? (iii) how do household level economic incentives affect the conditional probability of finding a job? The empirical analysis is based on individual panel data covering the years 1987–1993 in Finland, when the unemployment rate rose from about 4% to 18%. We have estimated the starting wage equation to calculate the effects of hypothetical re-employment on the household's disposable income and to evaluate the frequency of the unemployment trap. To analyse factors affecting the transition out of unemployment to employment in open labour market, we estimate unemployment duration using a semi-parametric proportional risk model. The paper shows that the impact of the economic incentives, measured by the hypothetical change in household disposable income, on employment is more important in the recession than in the boom. Copyright Kluwer Academic Publishers 1999

Suggested Citation

  • Pasi Holm & Tomi Kyyrä & Juha Rantala, 1999. "Household Level Economic Incentives, Unemployment Trap and Job Finding Probability," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(3), pages 361-378, August.
  • Handle: RePEc:kap:itaxpf:v:6:y:1999:i:3:p:361-378 DOI: 10.1023/A:1008707618520

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Andrew Chesher & Tony Lancaster, 1983. "The Estimation of Models of Labour Market Behaviour," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 609-624.
    2. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
    3. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-782, July.
    4. Moffitt, Robert, 1993. "Identification and estimation of dynamic models with a time series of repeated cross-sections," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 99-123, September.
    5. 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.
    6. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 109-126.
    7. Gerard J. van den Berg, 1990. "Nonstationarity in Job Search Theory," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 255-277.
    8. Chesher, Andrew D, 1984. "Testing for Neglected Heterogeneity," Econometrica, Econometric Society, vol. 52(4), pages 865-872, July.
    9. Reija Lilja, 1993. "Unemployment benefit system and unemployment duration in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 6(1), pages 25-37, Spring.
    10. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 347-368, September.
    11. Green, David A & Riddell, W Craig, 1997. "Qualifying for Unemployment Insurance: An Empirical Analysis," Economic Journal, Royal Economic Society, vol. 107(440), pages 67-84, January.
    12. Arulampalam, Wiji & Stewart, Mark B, 1995. "The Determinants of Individual Unemployment Durations in an Era of High Unemployment," Economic Journal, Royal Economic Society, vol. 105(429), pages 321-332, March.
    13. Narendranathan, W & Nickell, S & Stern, J, 1985. "Unemployment Benefits Revisited," Economic Journal, Royal Economic Society, vol. 95(378), pages 307-329, June.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. D'Addio, Anna Cristina & De Greef, Isabelle & Rosholm, Michael, 2002. "Assessing Unemployment Traps in Belgium Using Panel Data Sample Selection Models," IZA Discussion Papers 669, Institute for the Study of Labor (IZA).
    2. Tomi Kyyrä & Ralf A. Wilke, 2007. "Reduction in the Long-Term Unemployment of the Elderly: A Success Story from Finland," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 154-182, March.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:6:y:1999:i:3:p:361-378. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.