The Consequences of Long Term Unemployment: Evidence from Matched Employer-Employee Data

41 Pages Posted: 1 Oct 2016

See all articles by Katharine G. Abraham

Katharine G. Abraham

University of Maryland - Joint Program in Survey Methodology and Department of Economics; National Bureau of Economic Research (NBER)

John Haltiwanger

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Lee Kristin Sandusky

U.S. Census Bureau

James Spletzer

United States Department of Labor

Multiple version iconThere are 3 versions of this paper

Abstract

It is well known that the long-term unemployed fare worse in the labor market than the short-term unemployed, but less clear why this is so. One potential explanation is that the long-term unemployed are "bad apples" who had poorer prospects from the outset of their spells (heterogeneity). Another is that their bad outcomes are a consequence of the extended unemployment they have experienced (state dependence). We use Current Population Survey (CPS) data on unemployed individuals linked to wage records for the same people to distinguish between these competing explanations. For each person in our sample, we have wage record data that cover the period from 20 quarters before to 11 quarters after the quarter in which the person is observed in the CPS.This gives us rich information about prior and subsequent work histories not available to previous researchers that we use to control for individual heterogeneity that might be affecting subsequent labor market outcomes. Even with these controls in place, we find that unemployment duration has a strongly negative effect on the likelihood of subsequent employment. This finding is inconsistent with the heterogeneity ("bad apple") explanation for why the long-term unemployed fare worse than the short-term unemployed. We also find that longer unemployment durations are associated with lower subsequent earnings, though this is mainly attributable to the long-term unemployed having a lower likelihood of subsequent employment rather than to their having lower earnings once a job is found.

Keywords: unemployment duration, heterogeneity, state dependence

JEL Classification: J64

Suggested Citation

Abraham, Katharine G. and Haltiwanger, John C. and Sandusky, Lee Kristin and Spletzer, James, The Consequences of Long Term Unemployment: Evidence from Matched Employer-Employee Data. IZA Discussion Paper No. 10223. Available at SSRN: https://ssrn.com/abstract=2846314

Katharine G. Abraham (Contact Author)

University of Maryland - Joint Program in Survey Methodology and Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John C. Haltiwanger

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3504 (Phone)
301-405-3542 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Institute for the Study of Labor (IZA) ( email )

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

Lee Kristin Sandusky

U.S. Census Bureau ( email )

4600 Silver Hill Road
Washington, DC 20233
United States

James Spletzer

United States Department of Labor ( email )

2 Massachusetts Avenue, NE
Washington, DC 20212
United States
202-606-7393 (Phone)
202-606-4602 (Fax)

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