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Testing for state dependence effects in a dynamic model of male unemployment behaviour

  • Flaig, Gebhard
  • Licht, Georg
  • Steiner, Viktor

A dynamic random effects probit model is estimated on the first six waves of the German Socio-Economic Panel to test for state dependence effects in male unemployment behaviour. Estimation of the model is based on the marginal likelihood approach. In the model an individual's unemployment probability at a given point in time within the period 1985 - 1989 depends on his labour force status in the previous period and on the cumulated duration of past unemployment. Controlling for observed and unobserved population heterogeneity, we show that there are strong state dependence effects in individual unemployment dynamics with respect to both the incidence and the duration of an individual's past unemployment. These results are compatible with the 'scar theory' of unemployment which holds that an individual's previous unemployment experience may have long-term effects because it induces a depreciation of human capital and/or acts as a screening device in employers hiring decisions.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 93-07.

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Date of creation: 1993
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Handle: RePEc:zbw:zewdip:9307
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  1. Narendranathan, Wiji & Elias, Peter, 1993. "Influences of Past History on the Incidence of Youth Unemployment: Empirical Findings for the UK," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(2), pages 161-85, May.
  2. Gert G. Wagner & Jürgen Schupp & Ulrich Rendtel, 1991. "The Socio-Economic Panel (SOEP) for Germany - Methods of Production and Management of Longitudinal Data," Discussion Papers of DIW Berlin 31a, DIW Berlin, German Institute for Economic Research.
  3. Heckman, James J & Borjas, George J, 1980. "Does Unemployment Cause Future Unemployment? Definitions, Questions and Answers from a Continuous Time Model of Heterogeneity and State Dependence," Economica, London School of Economics and Political Science, vol. 47(187), pages 247-83, August.
  4. Wu, De-Min, 1973. "Alternative Tests of Independence Between Stochastic Regressors and Disturbances," Econometrica, Econometric Society, vol. 41(4), pages 733-50, July.
  5. James J. Heckman, 1981. "Heterogeneity and State Dependence," NBER Chapters, in: Studies in Labor Markets, pages 91-140 National Bureau of Economic Research, Inc.
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