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A Micro Approach to the Issue of Hysteresis in Unemployment: Evidence from the 1988­1990 Labour Market Activity Survey

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  • Gordon Wilkinson

Abstract

This paper uses a rich set of microeconomic labour market data--the 1988­90 Labour Market Activity Survey published by Statistics Canada--to test whether there is negative duration dependence in unemployment spells. It updates and extends similar work carried out by Jones (1995) who used the 1986­87 Labour Market Activity Survey. Applying hazard model estimation, the analysis finds some evidence of negative duration dependence at the microeconomic level, which is consistent with the de-skilling hypothesis of hysteresis. These microeconomic estimates of negative duration dependence are used to compute macroeconomic estimates of hysteresis in unemployment. The results suggest that hysteresis effects from de-skilling are very small at the macro level, contributing less than 0.1 percentage points to the aggregate unemployment rate. The small estimated size of this hysteresis effect may explain why evidence of hysteresis has been so difficult to find at the macroeconomic level. The paper also shows that Unemployment Insurance (UI) benefits reduce the probability of exiting from unemployment and that unemployment duration does not seem to be prolonged by reservation-wage effects.

Suggested Citation

  • Gordon Wilkinson, 1997. "A Micro Approach to the Issue of Hysteresis in Unemployment: Evidence from the 1988­1990 Labour Market Activity Survey," Staff Working Papers 97-12, Bank of Canada.
  • Handle: RePEc:bca:bocawp:97-12
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    References listed on IDEAS

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    1. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
    2. Lindeboom, Maarten & Theeuwes, Jules, 1991. "Job Duration in the Netherlands: The Co-existence of High Turnover and Permanent Job Attachment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(3), pages 243-264, August.
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    4. Groot, Wim, 1990. "Heterogeneous Jobs and Re-employment Probabilities," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(3), pages 253-267, August.
    5. Lauzon, D., 1995. "The Duration of Joblessness Following Displacement," Papers w-95-1, Gouvernement du Canada - Human Resources Development.
    6. Hujer, Reinhard & Schneider, Hilmar, 1989. "The analysis of labor market mobility using panel data," European Economic Review, Elsevier, vol. 33(2-3), pages 530-536, March.
    7. Lynch, Lisa M, 1989. "The Youth Labor Market in the Eighties: Determinants of Re-employment Probabilities for Young Men and Women," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 37-45, February.
    8. Jones, Stephen R G & Riddell, W Craig, 1995. "The Measurement of Labor Force Dynamics with Longitudinal Data: The Labour Market Activity Survey Filter," Journal of Labor Economics, University of Chicago Press, vol. 13(2), pages 351-385, April.
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    12. Alaouze, Chris M, 1987. "Empirical Evidence on the Sign of the Slope of the Hazard Rate from Unemployment from a Fixed Effects Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 2(2), pages 159-168, April.
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    Cited by:

    1. P. Garcia-del-Barrio & L. A. Gil-Alana, 2009. "New revelations about unemployment persistence in Spain: time-series and panel data approaches using regional data," Applied Economics, Taylor & Francis Journals, vol. 41(2), pages 219-236.

    More about this item

    Keywords

    Labour markets;

    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

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