Unemployment Narratives

We study economic narratives---causal accounts of observed events---in a high-stakes real-world context: long-term unemployment. We use open-ended questions to measure narratives about long-term unemployment in samples of Danish unemployed job seekers, firm managers, households from the general population, and experts at labor market institutions, as well as international academic experts. We document three main results. First, there is pronounced heterogeneity in narratives both within and across samples. For instance, job seekers are more likely to attribute long-term unemployment to factors outside the control of the individual and less likely to attribute it to job seekers’ own decisions than respondents in the other samples. Second, narratives strongly reflect job seekers' personal experiences during both the current and previous unemployment spells. Third, narratives shape job seekers' and firm managers' quantitative beliefs, decisions and labor market outcomes as measured in survey and linked administrative data, which we demonstrate in a field experiment and correlationally. Our findings highlight the experiential origins of economic narratives and underscore the key role of narratives in belief formation and decision making.