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Duration Dependence and Labor Market Conditions: Theory and Evidence from a Field Experiment

  • Kory Kroft
  • Fabian Lange
  • Matthew J. Notowidigdo

This paper studies the role of employer behavior in generating "negative duration dependence" -- the adverse effect of a longer unemployment spell -- by sending fictitious resumes to real job postings in 100 U.S. cities. Our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker's unemployment spell, with the majority of this decline occurring during the first eight months. We explore how this effect varies with local labor market conditions, and find that duration dependence is stronger when the labor market is tighter. We develop a theoretical framework that shows how the sign of this interaction effect can be used to discern among leading models of duration dependence based on employer screening, employer ranking, and human capital depreciation. Our results suggest that employer screening plays an important role in generating duration dependence; employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18387.

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Date of creation: Sep 2012
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Handle: RePEc:nbr:nberwo:18387
Note: LS
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  1. Stefan Eriksson & Dan-Olof Rooth, 2014. "Do Employers Use Unemployment as a Sorting Criterion When Hiring? Evidence from a Field Experiment," American Economic Review, American Economic Association, vol. 104(3), pages 1014-39, March.
  2. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
  3. Marianne Bertrand & Sendhil Mullainathan, 2003. "Are Emily and Greg More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination," NBER Working Papers 9873, National Bureau of Economic Research, Inc.
  4. Francisco M. Gonzalez & Shouyong Shi, 2010. "An Equilibrium Theory of Learning, Search, and Wages," Econometrica, Econometric Society, vol. 78(2), pages 509-537, 03.
  5. Krueger, Alan B. & Mueller, Andreas I., 2011. "Job Search and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," IZA Discussion Papers 5450, Institute for the Study of Labor (IZA).
  6. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
  7. Imbens, Guido W. & Lynch, Lisa M., 2006. "Re-Employment Probabilities over the Business Cycle," IZA Discussion Papers 2167, Institute for the Study of Labor (IZA).
  8. Stephen Machin & Alan Manning, 1998. "The causes and consequences of long-term unemployment in Europe," LSE Research Online Documents on Economics 20255, London School of Economics and Political Science, LSE Library.
  9. Nicola Pavoni, 2009. "Optimal Unemployment Insurance, With Human Capital Depreciation, And Duration Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 323-362, 05.
  10. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-62, December.
  11. V. Chernozhukov & I. Fernández-Val & A. Galichon, 2009. "Improving point and interval estimators of monotone functions by rearrangement," Biometrika, Biometrika Trust, vol. 96(3), pages 559-575.
  12. van den Berg, G. & van Ours, J.C., 1996. "Unemployment dynamics and duration dependence," Other publications TiSEM 4374742f-8d86-458d-9ab3-6, Tilburg University, School of Economics and Management.
  13. van den Berg, Gerard J & van Ours, Jan C, 1996. "Unemployment Dynamics and Duration Dependence," Journal of Labor Economics, University of Chicago Press, vol. 14(1), pages 100-125, January.
  14. Alan B. Krueger & Andreas Mueller, 2011. "Job Search, Emotional Well-Being and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 1-81.
  15. Acemoglu, Daron, 1995. "Public Policy in a Model of Long-Term Unemployment," Economica, London School of Economics and Political Science, vol. 62(246), pages 161-78, May.
  16. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
  17. Heckman, J & Singer, B, 1984. "The Identifiability of the Proportional Hazard Model," Review of Economic Studies, Wiley Blackwell, vol. 51(2), pages 231-41, April.
  18. Lockwood, Ben, 1991. "Information Externalities in the Labour Market and the Duration of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 58(4), pages 733-53, July.
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