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

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

Abstract

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.

Suggested Citation

  • Kroft, Kory & Lange, Fabian & Notowidigdo, Matthew J., 2012. "Duration Dependence and Labor Market Conditions: Theory and Evidence from a Field Experiment," CLSSRN working papers clsrn_admin-2012-21, Vancouver School of Economics, revised 28 Sep 2012.
  • Handle: RePEc:ubc:clssrn:clsrn_admin-2012-21
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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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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Unemployment dynamics
      by James_Hamilton in Econbrowser on 2014-05-08 02:54:52

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    Cited by:

    1. Bennmarker, Helge & Skans, Oskar Nordström & Vikman, Ulrika, 2013. "Workfare for the old and long-term unemployed," Labour Economics, Elsevier, vol. 25(C), pages 25-34.
    2. Warren Mosler & Damiano B. Silipo, 2016. "Maximizing Price Stability in a Monetary Economy," Economics Working Paper Archive wp_864, Levy Economics Institute.
    3. Marianna Kudlyak & Damba Lkhagvasuren & Roman Sysuyev, 2012. "Sorting by skill over the course of job search," Working Paper 12-03, Federal Reserve Bank of Richmond.
    4. Schwartz, J., 2015. "Optimal unemployment insurance: When search takes effort and money," Labour Economics, Elsevier, vol. 36(C), pages 1-17.
    5. Figura, Andrew & Barnichon, Regis, 2014. "The Effects of Unemployment Benefits on Unemployment and Labor Force Participation: Evidence from 35 Years of Benefits Extensions," Finance and Economics Discussion Series 2014-65, Board of Governors of the Federal Reserve System (U.S.).
    6. Jon D. Wisman & Aaron Pacitti, 2013. "Ending the Crisis With Guaranteed Employment and Retraining," Working Papers 2013-12, American University, Department of Economics.
    7. John M. Nunley & Adam Pugh & Nicholas Romero & Richard Alan Seals, Jr., 2014. "Unemployment, Underemployment, and Employment Opportunities: Results from a Correspondence Audit of the Labor Market for College Graduates," Auburn Economics Working Paper Series auwp2014-04, Department of Economics, Auburn University.
    8. Richard B. Freeman, 2013. "Failing the Test? The Flexible U.S. Job Market in the Great Recession," NBER Working Papers 19587, National Bureau of Economic Research, Inc.
    9. Nunley, John M. & Pugh, Adam & Romero, Nicholas & Seals, R. Alan, 2016. "College major, internship experience, and employment opportunities: Estimates from a résumé audit," Labour Economics, Elsevier, vol. 38(C), pages 37-46.
    10. Craighead, William, 2016. "Hysteresis in a New Keynesian Model," MPRA Paper 70777, University Library of Munich, Germany.
    11. Laura Pilossoph & Gregor Jarosch, 2014. "Hiring Practices, Duration Dependence, and Long-Term Unemployment," 2014 Meeting Papers 1256, Society for Economic Dynamics.
    12. Luc Behaghel & Bruno Crépon & Thomas Le Barbanchon, 2015. "Unintended Effects of Anonymous Résumés," American Economic Journal: Applied Economics, American Economic Association, vol. 7(3), pages 1-27, July.
    13. Faberman, R. Jason & Kudlyak, Marianna, 2014. "The Intensity of Job Search and Search Duration," Working Paper 14-12, Federal Reserve Bank of Richmond.
    14. repec:eee:jpolmo:v:39:y:2017:i:2:p:272-289 is not listed on IDEAS
    15. Hacı Mehmet TAŞÇI & Ali Rıza ÖZDEMİR & Burak DARICI, 2015. "Which Group of Individuals are subjected to Get Long-Term Unemployed During and After a Recession? Evidence from Turkey," Sosyoekonomi Journal, Sosyoekonomi Society, issue 23(24).
    16. John M. Nunley & Adam Pugh & Nicholas Romero & Richard Alan Seals, Jr., 2014. "An Examination of Racial Discrimination in the Labor Market for Recent College Graduates: Estimates from the Field," Auburn Economics Working Paper Series auwp2014-06, Department of Economics, Auburn University.

    More about this item

    Keywords

    Duration dependence; screening; business cycle; skill depreciation;

    JEL classification:

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

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