A Search Model of Discouragement
Discouragement is a process occurring during an unemployment spell. As the spell prolongs, an individual gradually realises that the returns to search can no longer outweigh search costs, and hence she may eventually leave the labour force. This is analysed theoretically in a framework of unemployed search. We construct a search model, which is stationary from the point of view of the individual, but which has nonstationary features. Namely, the unemployed worker is occasionally hit by shocks leading to a decline in job offer arrival rates. These shocks can be due to stigmatisation or to psychological consequences of unemployement affecting search effectiveness. This model enables us to analyse the issue of discouragement, as the returns to search will gradually decline. Even so, the model is actually stationary from the point of view of the individual, which implies that many interesting theoretical results may be derived. Moreover, from the point of view of the researcher, the model exhibits negative duration dependence in the hazard rate into employment and positive duration dependence in the hazard rate into non-participation, features which correspond well to real data. We use the model to analyse theoretically the impact of changes in unemployment insurance and social assistance benefits, and we conduct some simulation exercises based on a calibrated model.
|Date of creation:||Jun 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John T. Addison & Pedro Portugal, 2000.
"Unemployment Duration: Competing and Defective Risks,"
w200001, Banco de Portugal, Economics and Research Department.
- John T. Addison & Pedro Portugal, 2003. "Unemployment Duration Competing and Defective Risks," Journal of Human Resources, University of Wisconsin Press, vol. 38(1).
- Addison, John T. & Portugal, Pedro, 2001. "Unemployment Duration: Competing and Defective Risks," IZA Discussion Papers 350, Institute for the Study of Labor (IZA).
- Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
- Bruce D. Meyer, 1988.
"Unemployment Insurance And Unemployment Spells,"
NBER Working Papers
2546, National Bureau of Economic Research, Inc.
- Bover, O. & Arellano, M. & Bentolila, S., 1997.
"Unemployment Duration, Benefit Duration, and the Business Cycle,"
9717, Centro de Estudios Monetarios Y Financieros-.
- Olympia Bover & Manuel Arellano & Samuel Bentolila, 2002. "Unemployment Duration, Benefit Duration and the Business Cycle," Economic Journal, Royal Economic Society, vol. 112(479), pages 223-265, April.
- Arellano, Manuel & Bentolila, Samuel & Bover, Olympia, 1998. "Unemployment Duration, Benefit Duration and the Business Cycle," CEPR Discussion Papers 1840, C.E.P.R. Discussion Papers.
- Paul Frijters & Bas van der Klaauw, 2006.
"Job Search with Nonparticipation,"
Royal Economic Society, vol. 116(508), pages 45-83, 01.
- Frijters, Paul & van der Klaauw, Bas, 2004. "Job Search with Nonparticipation," IZA Discussion Papers 1407, Institute for the Study of Labor (IZA).
- Frijters, Paul & van der Klaauw, Bas, 2003. "Job Search with Nonparticipation," CEPR Discussion Papers 3922, C.E.P.R. Discussion Papers.
- Paul Frijters & Bas van der Klaauw, 2003. "Job Search with Nonparticipation," School of Economics and Finance Discussion Papers and Working Papers Series 168d, School of Economics and Finance, Queensland University of Technology.
- Paul Frijters & Bas van der Klaau, 2003. "Job Search with Nonparticipation," Paul Frijters Discussion Papers 2003-3, School of Economics and Finance, Queensland University of Technology.
- An, M.Y., 1996.
"Log-Concave Probability Distributions : Theory and Statistical Testing,"
96-01, Centre for Labour Market and Social Research, Danmark-.
- Mark Yuying An, 1996. "Log-concave Probability Distributions: Theory and Statistical Testing," Game Theory and Information 9611002, EconWPA.
- Micklewright, John & Nagy, Gyula, 1999. "Living standards and incentives in transition: the implications of UI exhaustion in Hungary," Journal of Public Economics, Elsevier, vol. 73(3), pages 297-319, September.
- Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February.
- van den Berg, Gerard J, 1990. "Search Behaviour, Transitions to Nonparticipation and the Duration of Unemployment," Economic Journal, Royal Economic Society, vol. 100(402), pages 842-65, September.
- Fredriksson, Peter & Holmlund, Bertil, 1998.
"Optimal Unemployment Insurance in Search Equilibrium,"
Working Paper Series
1998:2, Uppsala University, Department of Economics.
- Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 370-99, April.
- Fredriksson, P. & Holmlund, B., 1998. "Optimal Unemployment Insurance in Search Equilibrium," Papers 1998-2, Uppsala - Working Paper Series.
- Goldsmith, Arthur H. & Veum, Jonathan R. & Darity, William Jr., 1995. "Are being unemployed and being out of the labor force distinct states?: A psychological approach," Journal of Economic Psychology, Elsevier, vol. 16(2), pages 275-295, July.
- Burdett, Kenneth, et al, 1984. "Earnings, Unemployment, and the Allocation of Time over Time," Review of Economic Studies, Wiley Blackwell, vol. 51(4), pages 559-78, October.
- Theodossiou, I., 1998. "The effects of low-pay and unemployment on psychological well-being: A logistic regression approach," Journal of Health Economics, Elsevier, vol. 17(1), pages 85-104, January.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp1633. 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: (Mark Fallak)
If references are entirely missing, you can add them using this form.