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.     

Great expectations: Past wages and unemployment durations

Decomposing wages into worker and firm wage components, we find that firm-fixed components are sizeable parts of workers' wages. If workers can only imperfectly observe the extent of firm-fixed components in their wages, they might be misled about the overall wage distribution. Such misperceptions may lead to unjustified high reservation wages, resulting in overly long unemployment durations. We examine the influence of previous wages on unemployment durations for workers after exogenous lay-offs and, using Austrian administrative data, we find that younger workers are, in fact, unemployed longer if they profited from high firm-fixed components in the past. We interpret our findings as evidence for overconfidence generated by imperfectly observed productivity.     

Wage Formation,Regional Migration and Local Labour Market Tightness*

Empirical studies of regional wage formation and interregional migration routinely include the regional unemployment rate as indicator of local labour market tightness. However, these studies are usually motivated by economic theories that emphasize transition probabilities between unemployment and employment, and the unemployment rate is an imperfect proxy for these probabilities. We use a large micro data set to compute estimates of the rate of outflow from unemployment for 90 Norwegian travel‐to‐work areas. The outflow rates perform better than traditional measures of regional labour market tightness in panel data analyses of regional wages and interregional migration.     

Involuntary Unemplyment in Imperfectly Competitive General Equilibrium Models

This paper is about 'involuntary unemployment' in general equilibrium models with imperfect competition. It surveys papers written after the seminal work of d'Aspremont, Dos Santos Ferreira and Gérard‐Varet (1984). This unemployment is called involuntary because it exists at any wage. It results from imperfect competition in the product markets, more specifically from firms' excessive market power. These papers have focussed their attention on the conditions required for involuntary unemployment. In our presentation, we characterise this form of unemployment through three elements: consumers' preferences, price expectations and Ford effects. Each element is important because it influences the demand for the good and hence its price elasticity, the latter being central in the definition of firms' market power. JEL Classification. D43, E24.     

Unemployment Experiences of Young Men: on the Road to Stable Employment?*

This study examines the unemployment experiences of young men in the United Kingdom over the period 1982.IV–1998.I. The empirical results show that repeated unemployment is a dominant feature of the UK labour market and that individual heterogeneity affects mainly the incidence of unemployment and only to a much lesser extent the duration of unemployment. We estimate that about 73% of the young unemployed find stable employment before the age of 35. The remaining 27%, concentrated among the lower‐skilled, keep returning into unemployment, suggesting structural employment instability. These findings imply that a labour market programme targeted at increasing the employability of the young unemployed would yield long‐term benefits by not only getting them out of unemployment but also keeping them out of unemployment.     

Uncertainty and the Great Recession

Has heightened uncertainty been a major contributor to the Great Recession and the slow recovery in the United States? To answer this question, we identify exogenous changes in six uncertainty proxies and quantify their contributions to GDP growth and the unemployment rate. The answer is no. In total we find that increased macroeconomic and financial uncertainty can explain up to 10% of the drop in GDP at the height of the recession and up to 0.6 percentage points of the increased unemployment rates in 2009 through 2011. Our calculations further suggest that only a minor part of the rise in popular uncertainty measures during the Great Recession was driven by exogenous uncertainty shocks.     

The Last Word on the Wage Curve?

Abstract.  Since 1990, there has been extensive international research on the responsiveness of wages of individuals to changing local labour market conditions. For many countries, an inverse relationship between wages and local unemployment rates has been found. In their book, The Wage Curve , Blanchflower and Oswald argued that the unemployment elasticity of pay is around −0.1 in most countries. In a 1995 literature survey, Card referred to this striking empirical regularity as being close to an 'empirical law of economics'. Nonetheless, reported elasticities do vary, even excluding outliers, between about −0.5 and +0.1. There is also considerable heterogeneity among wage curve studies in terms of data and model specification. This paper carries out meta‐analytic techniques on a sample of 208 elasticities derived from the literature to uncover the reasons for the differences in empirical results across studies. Several causes of variation are identified. There is also clear evidence of downward publication bias. In addition, many reported t ‐statistics are biased upwards due to the use of aggregate unemployment rates. A maximum likelihood method and a trimming procedure are used to correct for these biases. Both methods give similar results for our sample. An unbiased estimate of the wage curve elasticity at the means of study characteristics is about −0.07.     

Why are the unemployed in worse health? The causal effect of unemployment on health

We analyse the effect of unemployment on health using information from the German Socio-Economic Panel of the years 1991-2008. To establish a causal effect we rely on fixed-effects methods and plant closures as exogenous entries into unemployment. Although unemployment is negatively correlated with health, we do not find a negative effect of unemployment due to plant closure on health across several health measures (health satisfaction, mental health, and hospital visits). For this subgroup of the unemployed, unemployment does not seem to be harmful and selection effects of ill individuals into unemployment are likely to contribute to the observed overall correlation between poor health and unemployment.     

On the evasion of employment protection legislation

This paper analyzes how the option to evade employment protection legislation impacts on unemployment. Using a stylized model, it is established that the level of unemployment is non-monotonous in the degree of strictness with which employment protection legislation is enforced. Considering just cause and social criteria requirements for three regulatory regimes representative of a large number of industrialized countries, we find that different regimes generate different dismissal decisions only if the regimes are strictly enforced. In contrast, unemployment rates may differ across regimes even in the case of weak enforcement. Additionally, we find that it may be worse for the economy to weakly enforce harmful regulations than to strictly enforce them.     

The Relationship between Unemployment Benefits and Re‐employment Probabilities: Evidence from Spain*

We provide the first Spanish evidence about the effects on re‐employment probabilities of variations in benefit levels and time‐to‐exhaustion. Increases in unemployment insurance (UI) benefit levels had a small disincentive effect on the re‐employment hazard on average. Around this average, there were larger disincentive effects for men with elapsed durations between 4 and 18 months, whereas for men unemployed longer than 18 months, or for men resident in the south, the effect was negligible. Re‐employment hazards increased when UI exhaustion was imminent, but the change was small. Extensions to unemployment assistance eligibility in 1989 for men aged 45+ years lowered re‐employment probabilities.     

Do Low‐Wage Workers React Less to Longer Unemployment Benefits? Quasi‐Experimental Evidence*

The fact that unemployed workers have different abilities to smooth consumption entails heterogeneous responses to extended unemployment benefits. Our empirical exercise explores a quasi‐experimental setting generated by an increase in the benefits entitlement period. The results suggest a hump‐shape response of unemployment duration over the one‐year pre‐unemployment wage distribution; individuals at the bottom and top of the wage distribution reacted less than those in the interquartile range. This behaviour of job searchers is consistent with labour supply models with unemployment insurance and savings. It questions the optimality of very long entitlement periods to target the unemployment experiences of low‐wage workers.     

A Complete Decomposition of Unemployment Dynamics using Longitudinal Grouped Duration Data*

In this paper, we study the unemployment dynamics in the Belgian regions, Flanders and Wallonia, on the basis of aggregate stratified data covering the period 1973–93. We decompose the aggregate exit probability from unemployment into calendar time and, both observed and unobserved, compositional effects. We find that changes in the inflow composition affect the cyclical fluctuations in unemployment duration only marginally. However, the long‐run improvement in the quality of entrants into unemployment, notably in terms of educational attainment, mitigates the strong upward trend in this duration. This is a new result as none of the existing studies purges the trend in the aggregate outflow rate of the variation in its composition. We also conclude that in Belgium, incidence explains as much as 45% of the evolution of unemployment. Finally, the diverging evolution of unemployment across Flanders and Wallonia predominantly results from a stronger decline in the exit rates from unemployment in Wallonia.     

Charity and redistributive taxation in a unionized economy

European economies are characterized by unionized labor markets and governmental redistribution of income. This paper studies a model where those two features are combined with the possibility for individuals to make charitable contributions to the poor. The model exhibits equilibrium unemployment that increases with the degree of altruism. It is shown that a more progressive income tax can both reduce the unemployment rate and improve the public budget. These results are driven by charity increasing wage pressure and the altruistic rich failing to internalize the effect of their donations on the wage setting behavior of the unions.     

Vacancy posting, job separation and unemployment fluctuations

What is the relative importance of hiring and separation in driving unemployment fluctuations? This paper presents a framework to decompose the moments of unemployment and study the respective contributions of vacancy posting, a measure of firms’ hiring efforts, and separation. Separation accounts for about 40% of unemployment's variance, compared to 60% for vacancy posting, and contributes to about 60% of unemployment steepness asymmetry, the fact that unemployment increases faster than it decreases. Further, while vacancy posting is, on average, the most important contributor of unemployment fluctuations, the opposite is true around business cycle turning points, when separation is responsible for most of unemployment movements.     

Note on the optimality of unemployment equilibria

An equilibrium concept for an economy with rigid prices has been given by Drèze (1975). He formulated a model where for some commodity, either the supplies or the demands are rationed. In this note we discuss ‘unemployment equilibria’, i.e., fixed price equilibria for which the quantity rationing affects the supplies only. It can be proved that there exists a set of unemployment equilibria. Therefore we consider the question whether it is possible to characterize the set of undominated unemployment equilibria.     

Institutions and Wage Determination: a Multi‐country Approach*

We present an empirical analysis of the determinants of labour cost in OECD countries, with particular reference to the impact of labour market institutions from 1960 to 1994. We show that labour market regulations can explain a large part of the labour cost rise in OECD countries in the last few decades once we control for productivity. These results are consistent with the findings of a companion paper [ Nickell, Nunziata and Ochel (2005) Economic Journal, Vol. 115, pp. 1–27] where the effects of institutions on unemployment are examined. We present also a discussion of the econometric issues related to the estimation of a macro pooled model like ours. We focus, among other things, on the hypothesis of poolability and on the cointegration properties of the model. The explanatory power of the model is finally tested by means of a series of country by country dynamic simulations.     

Claiming the corner office: Female CEO careers and implications for leadership development

Drawing on evidence from a unique data set of in‐depth qualitative interviews with 12 female CEOs (and 139 male CEOs) of global corporations, we explore what enables some women to become CEOs. By drawing on our data from male and female CEOs, we set the scene by comparing the advice they would give to young women as they start their careers. We then focus the rest of our article on the experiences and career trajectory of the 12 female CEOs. We make three theoretical contributions: We identify, at the individual level, how women can take active ownership of their careers as part of a self‐acceptance process; how they can embrace gynandrous leadership as part of a self‐development process where both feminine and masculine leadership behaviors are embraced, with the feminine being dominant to help move beyond gender stereotypes, and finally, how they translate leadership—rather than combine—gender‐based behaviors as part of a self‐management process to develop their unique leadership style. For each of these theoretical contributions at the individual level, we also provide two practical recommendations for HR practice and policy, one relating to the intraorganizational context and the second having institutional‐level implications. We conclude by discussing implications for future research.     

Labor quality,natural unemployment,and US inflation

The recent combination of low inflation and low unemployment has led some to question whether the short-run, Phillips curve trade-off is dead. We argue that the improved trade-off has resulted, in part, from improved labor quality in the form of increased average years of work experience and education, and use these variables to calculate new estimates of the natural unemployment rate. Based on evidence from inflation equations, we find strong support for a time-varying natural unemployment rate, and find that our measure based on labor quality outperforms other leading measures of natural unemployment.     

Replacement rates and labour market behaviour

This paper studies how the replacement rate, defined as the ratio of disposable income when unemployed to expected disposable income if beginning to work, affects individuals’ transition rate from unemployment. Linked register data, representing a local Finnish labour market in 1996, are analysed with piece-wise constant exponential hazard models. Results suggest that the effect of the replacement rate and, thus, of “unemployment traps”, is fairly modest. It does not seem to change with time spent unemployed. The impact on the transition rate into employment is lower than on the transition rate out of the labour force. Unemployment insurance recipients are found to be less sensitive to changes in the replacement rate than are unemployment assistance recipients.     

How do extended benefits affect unemployment duration? A regression discontinuity approach

This paper studies a targeted program that extends the maximum duration of unemployment benefits from 30 weeks to 209 weeks in Austria. Sharp discontinuities in treatment assignment at age 50 and at the border between eligible regions and control regions identify the effect of extended benefits on unemployment duration. Results indicate that the duration of job search is prolonged by at least 0.09 weeks per additional week of benefits among men, whereas unemployment duration increases by at least 0.32 weeks per additional week of benefits for women. This finding is consistent with a lower early retirement age applying to women.