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The role of observed and unobserved heterogeneity in the duration of unemployment

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  • Hie Joo Ahn

Abstract

This paper studies the degree to which observable and unobservable worker characteristics account for the variation in the aggregate duration of unemployment. I model the distribution of unobserved worker heterogeneity as time varying to capture the interaction of latent attributes with changes in labor‐market conditions. Unobserved heterogeneity is the main explanation for the duration dependence of unemployment hazards. Both cyclical and low‐frequency variations in the mean duration of unemployment are mainly driven by one subgroup: workers who, for unobserved reasons, stay unemployed for a long time. In contrast, changes in the composition of observable characteristics of workers have negligible effects.

Suggested Citation

  • Hie Joo Ahn, 2023. "The role of observed and unobserved heterogeneity in the duration of unemployment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(1), pages 3-23, January.
    • Handle: RePEc:wly:japmet:v:38:y:2023:i:1:p:3-23
    DOI: 10.1002/jae.2940
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    References listed on IDEAS

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    Cited by:

    1. Ahn, Hie Joo & Rudd, Jeremy B., 2025. "(Re-)Connecting inflation and the labor market: A tale of two curves," Journal of Monetary Economics, Elsevier, vol. 153(C).
    2. Ahn, Hie Joo, 2023. "Duration structure of unemployment hazards and the trend unemployment rate," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    3. Hie Joo Ahn & Lam Nguyen, 2025. "Who's at Risk? Effects of Inflation on Unemployment Risk," Papers 2505.05757, arXiv.org.
    4. Bruno Albuquerque, 2024. "Corporate debt booms, financial constraints, and the investment nexus," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(5), pages 766-789, August.
    5. Hie Joo Ahn & Jeremy B. Rudd, 2024. "(Re-)Connecting Inflation and the Labor Market: A Tale of Two Curves," Finance and Economics Discussion Series 2024-050r1, Board of Governors of the Federal Reserve System (U.S.), revised 28 May 2025.
    6. Rui Castro & Fabian Lange & Markus Poschke, 2024. "Labor Force Transitions," NBER Working Papers 33200, National Bureau of Economic Research, Inc.
    7. Rujiwattanapong, W. Similan, 2025. "Unemployment dynamics and endogenous unemployment insurance extensions," European Economic Review, Elsevier, vol. 178(C).
    8. Clement Oteng & Isaac N. Nyame, 2024. "RETRACTED: Idiosyncratic covariates of unemployment duration in Ghana: The joint effect of migration and education," African Development Review, African Development Bank, vol. 36(3), pages 444-456, September.

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