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Individuals' Unemployment Durations over the Business Cycle

  • Kalwij, Adriaan

    ()

    (Utrecht School of Economics)

Using a large panel of administrative records this study confirms the predictions of the ranking model of Blanchard and Diamond (1994) that an individual’s probability of leaving unemployment decreases with unemployment duration and increases with economic growth. However, the ranking model of Blanchard and Diamond (1994) makes the further prediction that negative genuine duration dependence will be stronger the more depressed the labour market. In conflict with this prediction this study provides persuasive empirical evidence that the pattern of negative genuine duration dependence does not change over the business cycle. Moreover it is shown that the finding in previous studies that negative genuine duration dependence becomes stronger the more depressed the labour market arises from failure to control for cyclical fluctuations in the composition of the newly unemployed. This finding carries a strong warning for policy assessment: unless controlled for cyclical fluctuations in the composition of the newly unemployed an evaluation of a policy designed to get the long-term unemployed into work will be biased towards a success in times of high economic growth and towards a failure in times of low economic growth.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 369.

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Length: 26 pages
Date of creation: Sep 2001
Date of revision:
Handle: RePEc:iza:izadps:dp369
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  1. Butler, Richard J & McDonald, James B, 1986. "Trends in Unemployment Duration Data," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 545-57, November.
  2. Stephen W. Salant, 1974. "Search theory and duration data: a theory of sorts," Special Studies Papers 42, Board of Governors of the Federal Reserve System (U.S.).
  3. Michael R. Darby & John Haltiwanger & Mark Plant, 1984. "Unemployment-Rate Dynamics and Persistent Unemployment Under RAtional Expectations," UCLA Economics Working Papers 339, UCLA Department of Economics.
  4. Lawrence F. Katz, 1996. "Wage Subsidies for the Disadvantaged," NBER Working Papers 5679, National Bureau of Economic Research, Inc.
  5. Dynarski, Mark & Sheffrin, Steven M, 1990. "The Behavior of Unemployment Durations over the Cycle," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 350-56, May.
  6. Blanchard, Olivier Jean & Diamond, Peter A, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 417-34, July.
  7. van Ours, J.C. & van den Berg, G.J., 1994. "Unemployment Dynamics and Duration Dependence in France, the Netherlands and the UK," Other publications TiSEM 941b66a3-a3a7-4182-9d31-e, Tilburg University, School of Economics and Management.
  8. Abbring, Jaap H & van den Berg, Gerard J & van Ours, Jan C, 2001. "Business Cycles and Compositional Variation in U.S. Unemployment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(4), pages 436-48, October.
  9. van den Berg, Gerard J & van Ours, Jan C, 1994. "Unemployment Dynamics and Duration Dependence in France, the Netherlands and the United Kingdom," Economic Journal, Royal Economic Society, vol. 104(423), pages 432-43, March.
  10. Brian Bell & Richard Blundell & John Reenen, 1999. "Getting the Unemployed Back to Work: The Role of Targeted Wage Subsidies," International Tax and Public Finance, Springer, vol. 6(3), pages 339-360, August.
  11. Layard, Richard & Nickell, Stephen, 1986. "Unemployment in Britain," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S121-69, Supplemen.
  12. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July.
  13. Huh, Keun & Sickles, Robin C, 1994. "Estimation of the Duration Model by Nonparametric Maximum Likelihood, Maximum Penalized Likelihood, and Probability Simulators," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 683-94, November.
  14. Guido W. Imbens & Lisa M. Lynch, 1993. "Re-Employment Probabilities over the Business Cycle," NBER Working Papers 4585, National Bureau of Economic Research, Inc.
  15. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
  16. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, March.
  17. Imbens, G W, 1994. "Transition Models in a Non-stationary Environment," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 703-20, November.
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