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The Consequences of Long-Term Unemployment: Evidence from Linked Survey and Administrative Data

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  • Katharine G. Abraham
  • John C. Haltiwanger
  • Kristin Sandusky
  • James Spletzer

Abstract

It is well known that the long-term unemployed fare worse in the labor market than the short-term unemployed, but less clear why this is so. One potential explanation is that the long-term unemployed are “bad apples” who had poorer prospects from the outset of their spells (heterogeneity). Another is that their bad outcomes are a consequence of the extended unemployment they have experienced (state dependence). We use Current Population Survey (CPS) data on unemployed individuals linked to wage records for the same people to distinguish between these competing explanations. For each person in our sample, we have wage record data that cover the period from 20 quarters before to 11 quarters after the quarter in which the person is observed in the CPS. This gives us rich information about prior and subsequent work histories not available to previous researchers that we use to control for individual heterogeneity that might be affecting subsequent labor market outcomes. Even with these controls in place, we find that unemployment duration has a strongly negative effect on the likelihood of subsequent employment. This result is robust to efforts to account for differences in labor market circumstances that might affect job-finding success rates. The findings are inconsistent with the heterogeneity (“bad apple”) explanation for why the long-term unemployed fare worse than the short-term unemployed and lend support to the state dependence explanation for the negative association between unemployment duration and subsequent employment rates. We also find that longer unemployment durations are associated with lower subsequent earnings, though this is mainly attributable to the long-term unemployed having a lower likelihood of subsequent employment rather than to their having lower earnings once a job is found.

Suggested Citation

  • Katharine G. Abraham & John C. Haltiwanger & Kristin Sandusky & James Spletzer, 2016. "The Consequences of Long-Term Unemployment: Evidence from Linked Survey and Administrative Data," NBER Working Papers 22665, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22665
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    Cited by:

    1. Samuel Bentolila & J. Ignacio García-Pérez & Marcel Jansen, 2017. "Are the Spanish long-term unemployed unemployable?," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 8(1), pages 1-41, March.
    2. Nüß, Patrick, 2017. "Duration Dependence as an Unemployment Stigma: Evidence from a Field Experiment in Germany," GLO Discussion Paper Series 88, Global Labor Organization (GLO).
    3. Dosi, Giovanni & Pereira, Marcelo C. & Roventini, Andrea & Virgillito, Maria Enrica, 2017. "Causes and Consequences of Hysteresis: Aggregate Demand, Productivity and Employment," GLO Discussion Paper Series 64, Global Labor Organization (GLO).
    4. Olivier J. Blanchard, 2017. "Should we Get rid of the Natural Rate Hypothesis?," NBER Working Papers 24057, National Bureau of Economic Research, Inc.
    5. B. Contini & J. Ignacio Garcia Perez & T. Pusch & R. Quaranta, 2017. "New Approaches to the Study of Long Term Non-Employment Duration in Italy, Germany and Spain," Working Papers 2017-14, FEDEA.
    6. Anger, Silke & Camehl, Georg & Peter, Frauke, 2017. "Involuntary job loss and changes in personality traits," Journal of Economic Psychology, Elsevier, vol. 60(C), pages 71-91.
    7. Pavlina R. Tcherneva, 2017. "Unemployment: The Silent Epidemic," Economics Working Paper Archive wp_895, Levy Economics Institute.
    8. Contini, Bruno & Quaranta, Roberto, 2017. "Explaining Non-Employment Magnitude and Duration: The Case of Italy," IZA Discussion Papers 10728, Institute for the Study of Labor (IZA).
    9. repec:aea:jecper:v:32:y:2018:i:1:p:97-120 is not listed on IDEAS
    10. Olivier Blanchard, 2018. "Should We Reject the Natural Rate Hypothesis?," Journal of Economic Perspectives, American Economic Association, vol. 32(1), pages 97-120, Winter.

    More about this item

    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
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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