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Long-Term Unemployment and the Great Recession: The Role of Composition, Duration Dependence, and Nonparticipation

In: Labor Markets in the Aftermath of the Great Recession

Author

Listed:
  • Kory Kroft
  • Fabian Lange
  • Matthew J. Notowidigdo
  • Lawrence F. Katz

Abstract

We explore the role of composition, duration dependence, and labor force nonparticipation in accounting for the sharp increase in the incidence of long-term unemployment (LTU) during the Great Recession. We show that compositional shifts account for very little of the observed increase in LTU. Using panel data from the Current Population Survey for 2002–7, we calibrate a matching model that allows for duration dependence in unemployment and transitions between employment, unemployment, and nonparticipation. The calibrated model accounts for almost all of the increase in LTU and much of the observed outward shift in the Beveridge curve between 2008 and 2013.
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Suggested Citation

  • Kory Kroft & Fabian Lange & Matthew J. Notowidigdo & Lawrence F. Katz, 2013. "Long-Term Unemployment and the Great Recession: The Role of Composition, Duration Dependence, and Nonparticipation," NBER Chapters, in: Labor Markets in the Aftermath of the Great Recession, pages 7-54, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:13281
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    as
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    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
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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