Unemployment durations and the pattern of duration dependence over the business cycle of British males

This paper examines the relationship between the business cycle and individuals’ duration in unemployment. I use multi-spell unemployment duration data of British males and monthly series of regional vacancies over unemployment, referred to as labour market tightness, to control for the business cycle. In line with most previous studies I find that the observed negative duration dependence on an aggregate level is explained by both sorting and strong negative individual duration dependence, and that the individual hazard of leaving unemployment increases with labour market tightness. The new empirical findings emerge from the interactions between individual duration dependence and the business cycle. Individual heterogeneity, and in particular the variation over the business cycle in the composition of the newly unemployed, explains most of the systematic variation over the business cycle in duration dependence on an aggregate level. Individual duration dependence does not vary over the business cycle in a way that would lend support to the predictions concerning this of the matching model of Lockwood (Rev Econ Stud 58:733–753, 1991) or the ranking model of Blanchard and Diamond (Rev Econ Stud 61:417–434, 1994).