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Layoffs, Recall and the Duration of Unemployment

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  • Lawrence F. Katz

Abstract

This paper shows that the prospect of recall to previous employer is important for a significant number of the unemployed in the United States and that taking into account the possibility of recalls has important implications for the study of unemployment spell durations. A job search model that allows for recalls is shown to lead naturally to a competing risks specification of the distribution of layoff unemployment spell durations in which recall and the taking of a new job are alternate routes for leaving unemployment. A large sample of individual layoff unemployment spell observations derived from the Panel Study of Income Dynamics is analyzed. The common finding for samples containing individuals with nonnegligible recall prospects of an escape rate from unemployment that declines with spell duration is shown to almost entirely result from a declining recall rate. The apparent declining recall rate may be indicative of important uncontrolled heterogeneity rather than true negative duration dependence. Strong positive duration dependence in the new job finding rate is uncovered for UI recipients. Factors raising the likelihood and value of recall appear to depress the new job finding rate. Substantial differences in the distribution of unemployment spell durations are found for UI recipients and nonrecipients. Large positive jumps in both the recall rate and new job finding rate are apparent around the point of UI benefits exhaustion for UI recipients. The results indicate that the potential duration of UI benefits plays an important role in the timing of recalls and of new job acceptances.

Suggested Citation

  • Lawrence F. Katz, 1986. "Layoffs, Recall and the Duration of Unemployment," NBER Working Papers 1825, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1825
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    References listed on IDEAS

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    1. 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.
    2. Kenneth Burdett & Dale T. Mortensen, 1977. "Labor Supply Under Uncertainty," Discussion Papers 297, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Kim B. Clark & Lawrence H. Summers, 1979. "Labor Market Dynamics and Unemployemnt: A Reconsideration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(1), pages 13-72.
    4. Ehrenberg, Ronald G & Oaxaca, Ronald L, 1976. "Unemployment Insurance, Duration of Unemployment, and Subsequent Wage Gain," American Economic Review, American Economic Association, vol. 66(5), pages 754-766, December.
    5. Christopher J. Flinn & James J. Heckman, 1982. "Models for the Analysis of Labor Force Dynamics," NBER Working Papers 0857, National Bureau of Economic Research, Inc.
    6. White, Barbara Ann, 1983. "Optimal Strategies for Workers on Temporary Layoff," Economic Inquiry, Western Economic Association International, vol. 21(4), pages 520-544, October.
    7. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 937-957, October.
    8. Martin S. Feldstein, 1975. "The Importance of Temporary Layoffs: An Empirical Analysis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(3), pages 725-745.
    9. John M. Barron & Wesley Mellow, 1979. "Search Effort in the Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 14(3), pages 389-404.
    10. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-956, July.
    11. Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, vol. 18(1), pages 115-168, January.
    12. Topel, Robert H, 1984. "Equilibrium Earnings, Turnover, and Unemployment: New Evidence," Journal of Labor Economics, University of Chicago Press, vol. 2(4), pages 500-522, October.
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