Unemployment Duration: Competing and Defective Risks

50 Pages Posted: 11 Sep 2001

See all articles by John T. Addison

John T. Addison

University of South Carolina - Moore School of Business - Department of Economics; IZA Institute of Labor Economics

Pedro Portugal

Bank of Portugal - Research Department; New University of Lisbon; IZA Institute of Labor Economics

Date Written: August 2001

Abstract

This paper examines the determinants of unemployment duration in a competing risks framework with two destination states, namely, inactivity and employment. The major innovation is our recognition of defective risks. We first use a polynomial hazard function to test for the presence of two-sources of defective risks: search involving a random process of unlucky draws that yields a non-proper duration distribution; and a split-population model in which the decision by some individuals not to consider certain destination states produces a defective distribution. Having established the primacy of the latter model, we refine it using a more flexible piecewise-constant baseline hazard function. This specification broadly confirms our earlier findings but offers a more convincing explanation for positive and zero transition rates out of unemployment. Although we do not reject the null of proportionality, abandoning the proportionality assumption does not materially alter our conclusions.

Keywords: Unemployment Duration, Competing Risks, Defective Risks, Non-Proper Distribution, Split-Population Model

JEL Classification: C41, J64, J65

Suggested Citation

Addison, John T. and Portugal, Pedro, Unemployment Duration: Competing and Defective Risks (August 2001). IZA Discussion Paper No. 350. Available at SSRN: https://ssrn.com/abstract=283111

John T. Addison (Contact Author)

University of South Carolina - Moore School of Business - Department of Economics ( email )

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HOME PAGE: http://mooreschool.sc.edu/moore/economics/profiles/addison.htm

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Pedro Portugal

Bank of Portugal - Research Department ( email )

Av. Almirante Reis 71, 6th
Lisbon 1150-012
Portugal
+351 21 313 0000 (Phone)
+351 21 814 3841 (Fax)

New University of Lisbon

Lisbon, 1099-085
Portugal

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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