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

  • Kroft, Kory
  • Lange, Fabian
  • Notowidigdo, Matthew J.

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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File URL: http://www.clsrn.econ.ubc.ca/workingpapers/CLSRN%20Working%20Paper%20no.%20101%20-%20Kroft,%20Lange%20and%20Notowidigo.pdf
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Paper provided by Vancouver School of Economics in its series CLSSRN working papers with number clsrn_admin-2012-21.

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Length: 61 pages
Date of creation: 28 Sep 2012
Date of revision: 28 Sep 2012
Handle: RePEc:ubc:clssrn:clsrn_admin-2012-21
Contact details of provider: Web page: http://www.clsrn.econ.ubc.ca/

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  1. Stephen Machin & Alan Manning, 1998. "The Causes and Consequences of Long-Term Unemployment in Europe," CEP Discussion Papers dp0400, Centre for Economic Performance, LSE.
  2. Marianne Bertrand & Sendhil Mullainathan, 2003. "Are emily and greg more employable than lakisha and jamal? A field experiment on labor market discrimination," Natural Field Experiments 00216, The Field Experiments Website.
  3. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
  4. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  5. 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.
  6. 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.
  7. Guido Imbens & Lisa Lynch, 2006. "Re-employment probabilities over the business cycle," Portuguese Economic Journal, Springer, vol. 5(2), pages 111-134, August.
  8. Alan B. Krueger & Andreas Mueller, 2011. "Job Search and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," Working Papers 1283, Princeton University, Department of Economics, Industrial Relations Section..
  9. 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.
  10. Francisco M. Gonzalez & Shouyong Shi, 2010. "An Equilibrium Theory of Learning, Search, and Wages," Econometrica, Econometric Society, vol. 78(2), pages 509-537, 03.
  11. 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.
  12. Eriksson, Stefan & Rooth, Dan-Olof, 2011. "Do Employers Use Unemployment as a Sorting Criterion When Hiring? Evidence from a Field Experiment," IZA Discussion Papers 6235, Institute for the Study of Labor (IZA).
  13. Berg, G.J. & Ours, J.C., 1993. "Unemployment dynamics and duration dependence," Serie Research Memoranda 0022, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  14. Lars Ljungqvist & Thomas J. Sargent, 1995. "The European unemployment dilemma," Working Paper Series, Macroeconomic Issues 95-17, Federal Reserve Bank of Chicago.
  15. 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.
  16. 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.
  17. Victor Chernozhukov & Ivan Fernandez-Val & Alfred Galichon, 2008. "Improving point and interval estimates of monotone functions by rearrangement," CeMMAP working papers CWP17/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  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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