Individuals' Unemployment Durations Over the Business Cycle

25 Pages Posted: 27 Sep 2001

See all articles by Adriaan Kalwij

Adriaan Kalwij

IZA Institute of Labor Economics

Date Written: September 2001

Abstract

Using a large panel of administrative records this study confirms the predictions of the ranking model of Blanchard and Diamond (1994) that an individual's probability of leaving unemployment decreases with unemployment duration and increases with economic growth. However, the ranking model of Blanchard and Diamond (1994) makes the further prediction that negative genuine duration dependence will be stronger the more depressed the labor market. In conflict with this prediction this study provides persuasive empirical evidence that the pattern of negative genuine duration dependence does not change over the business cycle. Moreover it is shown that the finding in previous studies that negative genuine duration dependence becomes stronger the more depressed the labor market arises from failure to control for cyclical fluctuations in the composition of the newly unemployed. This finding carries a strong warning for policy assessment: unless controlled for cyclical fluctuations in the composition of the newly unemployed an evaluation of a policy designed to get the long-term unemployed into work will be biased towards a success in times of high economic growth and towards a failure in times of low economic growth.

Keywords: Unemployment, Duration Model, Business Cycles

JEL Classification: J64, C41, E32

Suggested Citation

Kalwij, Adriaan S., Individuals' Unemployment Durations Over the Business Cycle (September 2001). Available at SSRN: https://ssrn.com/abstract=285425 or http://dx.doi.org/10.2139/ssrn.285425

Adriaan S. Kalwij (Contact Author)

IZA Institute of Labor Economics ( email )

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

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