Unemployment duration and the role of compositional variation: evidence from a period of economic crisis in Finland

The recession of the early 1990s caused a serious unemployment problem in Finland. This study investigates the role of compositional variation in unemployment duration using individual data on Finnish workers. The compositional effect is examined by predicting the impact of the observed unemployment inflow heterogeneity on aggregate re-employment rates. Focusing on a recession period provides useful variation for the analysis due to large increase in the unemployment inflow. According to the results, the aggregate outflow effect dominates and the observed compositional variation implies only a small increasing trend in the average duration during the recession period.