Labour Market Signalling and Unemployment Duration: An Empirical Analysis Using Employer-Employee Data

29 Pages Posted: 24 May 2006

See all articles by Anders Frederiksen

Anders Frederiksen

IZA Institute of Labor Economics

Rikke Ibsen

Aarhus University - School of Business and Social Sciences

Michael Rosholm

Aarhus University - Department of Economics; IZA Institute of Labor Economics; Amternes og Kommunernes Forskningsinstitut (AKF)

Niels Westergaard-Nielsen

Copenhagen Business School; IZA Institute of Labor Economics

Date Written: May 2006

Abstract

This paper tests the signalling hypothesis using detailed flow-based employer-employee data from Denmark. The primary focus is to explore how the conditions in the pre-displacement firm affect the duration of unemployment. The empirical analysis is conducted within a competing risk framework, with destinations into reemployment and inactivity, which yields more plausible estimates of the signalling effect. It is established that the positive ability signal of being displaced due to a plant closure is significant but also that the signal of displacement from severe downsizing is important. Issues that have previously been ignored in the empirical analysis of the signalling hypothesis such as local labour market conditions, the sector of employment and the duration of the previous employment match are established to be important determinants for the time spent in unemployment. The heterogeneity of the signalling effect across various employee subgroups in the economy is also explored. These findings emphasize that individuals' reemployment prospects are heavily influenced by the labour market history and in particular by the conditions in the firms in which they were previously employed.

Keywords: unemployment duration, signalling, plant closure

JEL Classification: J64, J65, J68

Suggested Citation

Frederiksen, Anders and Ibsen, Rikke and Rosholm, Michael and Westergaard-Nielsen, Niels, Labour Market Signalling and Unemployment Duration: An Empirical Analysis Using Employer-Employee Data (May 2006). IZA Discussion Paper No. 2132. Available at SSRN: https://ssrn.com/abstract=904147

Anders Frederiksen

IZA Institute of Labor Economics ( email )

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

Rikke Ibsen

Aarhus University - School of Business and Social Sciences ( email )

Nordre Ringgade 1
Aarhus C, DK-8000
Denmark

Michael Rosholm (Contact Author)

Aarhus University - Department of Economics ( email )

University Park
DK-8000 Aarhus C
Denmark
+45 89 42 15 59 (Phone)
+45 86 13 63 34 (Fax)

IZA Institute of Labor Economics

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

Amternes og Kommunernes Forskningsinstitut (AKF)

Nyropsgade 37
Copenhagen, DK-1602
Denmark

Niels Westergaard-Nielsen

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

IZA Institute of Labor Economics

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

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