Duration Dependence and Composition in Unemployment Spells

This article reviews the evidence for duration dependence in job-finding rates and its implications for the unemployment duration distribution. The authors document duration dependence and show that it exists within nearly every demographic subgroup. Then, they examine the implications of duration d...

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Bibliographic Details
Published in:Review - Federal Reserve Bank of St. Louis 2016-12, Vol.98 (4), p.263-276
Main Authors: Eubanks, James D, Wiczer, David
Format: Article
Language:English
Subjects:
Analysis
Economic recession
Employment
Great Recession
Heckman, James
Heterogeneity
Job hunting
Labor market
Labour market
Markov analysis
Population
Public policy
Recessions
Unemployment
Unemployment rates
United States
Workers
Workers compensation
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Description
Summary:This article reviews the evidence for duration dependence in job-finding rates and its implications for the unemployment duration distribution. The authors document duration dependence and show that it exists within nearly every demographic subgroup. Then, they examine the implications of duration dependence on unemployment duration, emphasizing that a uniform job-finding rate that does not incorporate duration dependence understates unemployment duration. Finally, they explore a composition-based approach to duration dependence, where they solve for the distribution of preexisting heterogeneity that is consistent with observed duration dependence. The authors look at how this distribution varies cyclically and, in particular, during the Great Recession. The largest changes occur at the low finding-rate tail of this distribution.
ISSN:0014-9187
2163-4505
DOI:10.20955/r.2016.263-276