Empirical evidence on the sign of the slope of the hazard rate from unemployment from a fixed effects model

Empirical evidence on the sign of the slope of the hazard rate from unemployment is obtained from a fixed effects model based on the gamma distribution for unemployment duration. The data used are pairs of unemployment spells for adult males in the control and experimental groups of the Denver Income Maintenance Experiment. The sample selection issue involved in selecting the pair of spells used in the empirical work is discussed. The empirical results suggest that for these samples the hazard function is monotone decreasing and support the assumptions that the first two spells of unemployment are identically distributed and can be modelled using the gamma distribution.     

Spell durations with long unemployment insurance periods

This paper uses data from a natural experiment to investigate the potential incentive effect of a fixed unemployment insurance period. We compare two large groups of Norwegian unemployed persons who registered as unemployed in 1990 and 1991. The last group was affected by a rule change that in practice extended the length of unemployment benefits to more than 3 years. Our data are taken from official records, and we construct unemployment durations by combining information from the unemployment registers with employers' records. We use a proportional hazard model with a flexible baseline. The results suggest that the main effect of benefits running out is to make people drop out of the unemployment register. We find neither clear evidence that the hazard into employment increased when the end of benefits approached in the pre-liberalisation group, nor that behaviour in this part of the spells changed after the reform. On the other hand, our results suggest that the reform had an all over negative effect on the employment hazard.     

Durations in Panel Data Subject to Attrition: A Note on Estimation in the Case of a Stock Sample1

In the empirical analysis of unemployment durations or job durations, it is generally assumed that the stochastic processes underlying labour market behaviour and the behaviour concerning participation in a panel survey are independent. As a consequence, spells that are incomplete due to attrition can be treated as spells that are subjected to independent right censoring. However, if the assumption of independence is violated, i.e. if for example the probability of dropping out of the panel is related to the rate at which a job is found, then attrition may have to be modelled and estimated jointly with the unemployment duration distribution to avoid biased estimates of the rate at which individuals become employed. A way to model the joint dependence is by means of stochastically related unobserved determinants. We discuss some properties of these kinds of models and state conditions needed to estimate such models in the case of stock sampled duration data.     

DURATION DEPENDENCE VERSUS UNOBSERVED HETEROGENEITY IN TREATMENT EFFECTS: SWEDISH LABOR MARKET TRAINING AND THE TRANSITION RATE TO EMPLOYMENT

The effect of a treatment on the hazard rate of a duration outcome may depend on the elapsed time since treatment. In addition, treatment effects may be heterogeneous across agents. The former gives rise to duration dependence of the treatment effect, whereas unobserved heterogeneity gives rise to spurious duration dependence of the observable hazard rate. We develop a model allowing for duration dependence and unobserved heterogeneity in the treatment effect. The model incorporates a Timing of Events model and allows for selectivity on unobservables. We prove identification, exploiting variation in the timing of treatment and outcome. In the application we analyze the effects of the Swedish vocational employment training program on the individual transition rate from unemployment to work. We demonstrate the appropriateness of the approach by studying the enrollment process. The data cover the population and include multiple unemployment spells for many individuals. The results indicate a large, significantly positive effect on exit to work shortly after exiting the program. The effect at the individual level diminishes after some weeks. When taking account of the time spent in the program, the effect on the mean unemployment duration is small. Copyright © 2012 John Wiley & Sons, Ltd.     

Distribution and determinants of lifetime unemployment

The empirical literature on unemployment almost exclusively focuses on the duration of distinct unemployment spells. In contrast, we use a unique administrative micro data set for the time span 1975-2004 to investigate individual lifetime unemployment — defined as the cumulative length of all unemployment spells over a 25-year period. This new perspective enables us to answer questions regarding the long-term distribution and determinants of unemployment for birth cohorts 1950-1954. We show that lifetime unemployment is highly concentrated on a small part of the population. With censored quantile regressions we investigate the long-lasting influence of bad luck early in the professional career: Controlling for individual and firm characteristics we find that choosing at a young age what turns out to be an unfavorable occupation significantly increases the predicted amount of lifetime unemployment.     

State dependency in youth unemployment: A lost generation?

Utilizing a job search framework and survey data on both completed and uncompleted spells of unemployment we present in this paper maximum likelihood estimates of the determinants of re-employment probabilities of young workers in Britain. The model used allows us to examine the importance of state dependency in youth unemployment as well as ethnicity, educational qualifications, and unemployment income. Results suggest that there is strong evidence of negative duration dependence in the transition from unemployment to employment for young workers in Britain.     

SHORT-AND LONG-TERM UNEMPLOYMENT. A PARAMETRIC MODEL WITH TIME-VARYING EFFECTS

ABSTRACT In this paper we present the first application to unemployment duration analysis of a mixture distribution model initially proposed in the biosciences literature by Blackstone, Naftel and Turner (1986). The model is characterized by the decomposition of an aggregate hazard function into a number of distinct hazard functions. The approach allows us to attribute to each function a different set of covariates as well as coefficients. Using US data on displaced workers, we are able to decompose the time varying hazard into two distinct phases — corresponding to short-term and long-term unemployment — and in the process evaluate (and reject) the proportionality assumption. We also compare the results from the model with those obtained from the Cox proportional hazards model and with a parametric hazards model in which a Burr specification is employed for the baseline hazard.     

Early Labor Market Experiences of Youth and Subsequent Wages

A bstract . High youth unemployment continues to be a major concern to policymakers in the United States. In view of the many studies that have documented a perpetuation of the relatively high jobless rates for youth in the postwar period whether disaggregated by age, sex , or race , the debate on the youth employment-unemployment problem has begun to focus more recently on its socioeconomic consequences. One of the overriding concerns is that early labor market unemployment experiences might carry over into later labor force performance. The cumulative effects of prolonged periods of unemployment and intermittent unemployment (i.e. , duration and spells of unemployment) on the subsequent wages of a cohort of young men are examined. Spells of unemployment experienced early in the labor market careers of the cohort tended to have an increasing effect on their later wages , while spells occurring later and the duration of unemployment then serve to lower their subsequent wages.     

Market structure and spells of employment and unemployment: Evidence from the construction sector in Egypt

This paper investigates the links between market structure and spells of employment and unemployment in the construction sector in Egypt using an augmented job search framework. Two key features of the model are the reservation frontier which allows for a trade-off between wages and expected duration of employment, and the dependency of unemployment durations on expected employment durations and expected wages. These, as well as conjectures concerning the influence of demand-side forces obtained from the expressions for the transition rates out of employment and unemployment, are examined using Weibull, log-logistic and generalized gamma parameterizations of the hazard rate. The parametric assumptions are exploited to resolve problems associated with selectivity and use of generated regressors.     

Potential Unemployment Benefit Duration and Spell Length: Lessons from a Quasi-Experiment in Austria

The paper studies the effect of potential unemployment benefit duration on the length of unemployment spells in Austria. It takes advantage of a quasi-experimental situation, where potential benefit duration was extended in 1988 for elderly workers living in specific regions of the country. The empirical analysis shows that men react significantly to benefit duration whereas women generally do not. The quantitative impact is smaller than in comparable studies for the US and Germany. Furthermore, the impact of extended benefit duration is differentiated for short and long spells. Whereas for long spells higher impacts for men as well as for women are found, no unemployment-prolonging effects for short spells could be detected.     

Treatment effect of job-training programmes on unemployment duration in Slovakia

There is a large literature evaluating job-training programmes. In this paper, we evaluate three such job-training programmes that are used in Slovakia. Individuals participating in a job-training programme during their unemployment spell are usually not a random subsample of the population. To determine the treatment effect of a job-training programme on unemployment duration, one has to correct for this selection effect. Therefore, we use a multivariate mixed proportional hazard-type model to describe the hazard of getting a job simultaneously with the hazard of entering a programme. We allow for a heterogeneous treatment effect and for the treatment effect to vary over time. Furthermore, we add the monthly unemployment rate as a time-varying explanatory variable. The estimation results show that two of the three programmes shorten the unemployment duration quite substantially.     

Incidence and duration of unemployment spells: Implications for the male–female wage differentials

We demonstrate in this paper that the incidence of unemployment and duration of unemployment spells affect the male–female gender wage differential. The results indicate that after controlling for sample selectivity bias in the wage equation, the incidence of unemployment and duration of unemployment spells account for about 14.2% and 39.6%, respectively, of the wage differential that exists between males and females. We observed that while the duration of unemployment accounts for a substantial portion of the wage differential in both the service (48.8%) and the manufacturing (17.0%) sectors, the impacts of the incidence of unemployment and duration of unemployment spells variables on the wage differential are rather small in the service (0.07%) and the manufacturing (1.6%) sectors. Also, high incidence of unemployments is associated with low wages for males and females in all samples. In contrast, longer durations of unemployment spells tend to increase males’ wages and decrease females’ wages in the full and service sector samples. At the macro level, the results seem to suggest that promotion of gender wage equality should be associated with policies that will minimize the female's incidence of unemployment and duration of unemployment spells.     

Unemployment insurance and the distribution of unemployment spells

In this paper administrative data from the unemployment-insurance (UI) system are used to examine the distribution of unemployment spells. Hazard plots of the data reveal a strong clustering around the benefit exhaustion point. In addition, estimation of the effects of the exhaustion point and of the UI benefit level on spell lengths obtained with a non-parametric proportional-hazards model - estimated by direct maximization of the general likelihood function - shows significant effects of both. However, the effect of the exhaustion point on the hazard is not proportional, making detection of its effect somewhat difficult.     

How does the benefit effect vary as unemployment spells lengthen?

This paper investigates how the effect of income while unemployed on the probability of an individual leaving unemployment varies with the length of time that the individual has been unemployed. We examine this question in the context of a variety of alternative econometric models. We extend the Proportional Hazards model with unrestricted baseline hazard to one in which there are unrestricted effects of a subset of the explanatory variables and also consider models that can be estimated as series of binary response models. The proportional hazard restrictions are rejected for the sample of British unemployed men analysed and in the binary sequence framework Logit and Probit models based on symmetric distributions dominate (in likelihood terms) the Extreme Value form model implied by extension of the Proportional Hazards formulation. Logit models with a flexible form for the duration dependence which also incorporate unobserved heterogeneity in a flexible way are estimated. The results for all formulations indicate a rapidly declining effect of unemployment income as a spell lengthens, with no significant effect for the long-term unemployed. The preferred specifications which allow for omitted heterogeneity indicate no significant effect after about 5 months, and this result is robust to the inclusion or exclusion of previous labour-market experience variables and to the choice of mixing distribution.     

When do they leave? The dynamics of living in low-income neighbourhoods

We use longitudinal tax data to explore several undocumented aspects of residential spells in low-income neighbourhoods. Although new spells generally last much longer than spells in the low-income state, both types of spells exhibit negative duration dependence. While factors such as family type, age, and local unemployment rates play a considerable role in the length of both types of spells, the magnitude of these roles is quite different. These differences suggest that in contrast to the low-income state, the dynamics of low-income neighbourhood spells are largely shaped by non-economic factors.     

Exits from unemployment: Recall or new job

This paper studies transitions out of unemployment in Spain distinguishing between recall to the same employer and reemployment in a new job. We use a large sample of newly unemployed workers obtained from Social Security records for Spain. These data contain information about each individual's employer identity before and after the unemployment spell. A discrete-time duration model with competing risks of exits serves us to investigate the factors that influence the probabilities of leaving unemployment to return to the same employer or to find a new job with a different employer. We find that taking into account the route to exit unemployment helps us to understand the influence of individual and job characteristics on the hazard rate. Moreover, the recall hazard rate exhibits no duration dependence, whereas the new-job hazard rate presents positive duration dependence.     

Conducting inference in semiparametric duration models under inequality restrictions on the shape of the hazard implied by job search theory

Using a four-month panel of revised Current Population Survey data from September–December 1993, we extend the class of semiparametric hazard models of the type first studied by Prentice and Gloeckler ( 1978 ), and brought to the attention of economists by Meyer ( 1988 , 1990 ), to incorporate inequality restrictions on the shape of the hazard. This extension enables us to test hypotheses regarding the shape of the hazard implied by search theory using duration data alone. These tests provide another link between the empirical and theoretical literatures on unemployment duration and job search. The GHK probability simulator makes it straightforward to generate approximate hypothesis test results, as simulation estimates of the probability under the null hypothesis are generated using the asymptotic normal approximation to the distribution of the hazard parameters obtained from maximum likelihood estimation. Importance sampling is used to conduct inference under the null and obtain exact finite sample estimates of the probability the null is satisfied. A new algorithm for maintaining stability of the importance weights is also developed. Copyright © 1999 John Wiley & Sons, Ltd.     

A Bayesian Semiparametric Competing Risk Model with Unobserved Heterogeneity

This paper generalizes existing econometric models for censored competing risks by introducing a new flexible specification based on a piecewise linear baseline hazard, time‐varying regressors, and unobserved individual heterogeneity distributed as an infinite mixture of generalized inverse Gaussian (GIG) densities, nesting the gamma kernel as a special case. A common correlated latent time effect induces dependence among risks. Our model is based on underlying latent exit decisions in continuous time while only a time interval containing the exit time is observed, as is common in economic data. We do not make the simplifying assumption of discretizing exit decisions—our competing risk model setup allows for latent exit times of different risk types to be realized within the same time period. In this setting, we derive a tractable likelihood based on scaled GIG Laplace transforms and their higher‐order derivatives. We apply our approach to analyzing the determinants of unemployment duration with exits to jobs in the same industry or a different industry among unemployment insurance recipients on nationally representative individual‐level survey data from the US Department of Labor. Our approach allows us to conduct a counterfactual policy experiment by changing the replacement rate: we find that the impact of its change on the probability of exit from unemployment is inelastic. Copyright © 2014 John Wiley & Sons, Ltd.     

Do the Rich Stay Unemployed Longer? An Empirical Study for the UK

This paper investigates the impact of individual asset holdings on the probability of leaving unemployment. According to the theory, higher levels of financial wealth will result in higher reservation wages and longer unemployment durations. I estimate the impact of financial assets on the hazard rate, using data for Great Britain. The empirical findings indicate that individual asset holdings affect significantly the escape rate out of unemployment. In particular, negative (positive) levels of wealth increase (reduce) the hazard of leaving unemployment. The size of the impact is, however, rather small. Increasing by 100% the level of wealth of a representative individual, with net wealth and other individual characteristics equal to the sample mean, increases the duration of the unemployment spell by half a week.