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

61 Pages Posted: 15 Sep 2012  

Kory Kroft

University of Toronto

Fabian Lange

McGill University

Matthew Notowidigdo

University of Chicago - Booth School of Business

Date Written: September 2012

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 and Lange, Fabian and Notowidigdo, Matthew, Duration Dependence and Labor Market Conditions: Theory and Evidence from a Field Experiment (September 2012). NBER Working Paper No. w18387. Available at SSRN: https://ssrn.com/abstract=2147097

Kory Kroft (Contact Author)

University of Toronto ( email )

Department of Statistical Sciences
Toronto, Ontario M5S 3G8
Canada

Fabian Lange

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Matthew Notowidigdo

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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