Duration Dependence and Composition in Unemployment Spells
14 Pages Posted: 7 Dec 2016 Last revised: 17 Jul 2019
Date Written: 2016
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.
JEL Classification: E24, J14
Suggested Citation: Suggested Citation