Negative Duration Dependence Research Articles

STATISTICAL DISCRIMINATION AND DURATION DEPENDENCE IN A SEMISTRUCTURAL MODEL

AbstractThis article develops a job‐search model with unobserved worker heterogeneity and learning about worker types from unemployment duration. The model features negative duration dependence that stems from unobserved heterogeneity, skill depreciation, and statistical discrimination. We estimate job‐finding rates implied by our model using microlevel data from the Current Population Survey. We find that removing interview costs counterfactually, thereby eliminating statistical discrimination, substantially increases the job‐finding rates of the long‐term unemployed. The performance of low‐skill workers at the interview stage with discriminating firms plays a key role in explaining our counterfactual result.

Is there a welfare trap? Duration dependence in social assistance recipiency among young Finns

The probability of social assistance exit decreasing over time is called negative duration dependence. This is one of the most debated aspects of social assistance receipt. This study analyses duration dependence among young adults in Finland and aims to show how social assistance receipt per se affects the likelihood of exiting social assistance. It also examines whether parental recipiency is associated with duration dependence. While the intergenerational transmission of social assistance has received extensive research attention, there is a scarcity of evidence on whether parental recipiency is associated with social assistance exits and duration effects. This study uses full monthly history of social assistance receipt between the ages of 19 and 29 years. The analyses are based on Finnish register data and conducted using discrete-time event-history models (pooled logistic, random-effect logistic and fixed-effect logistic). The findings indicate that controlling for all time-invariant characteristics significantly reduces but does not completely remove duration dependence among young adults. They also show that those whose parents received social assistance are less likely to exit social assistance. In models controlling for all time-invariant characteristics, parental social assistance receipt is also linked with stronger duration dependence. The implications of these findings are discussed.

Contact statistics in populations of noninteracting random walkers in two dimensions.

The interaction between individuals in biological populations, dilute components of chemical systems, or particles transported by turbulent flows depends critically on their contact statistics. This work clarifies those statistics under the simplifying assumptions that the underlying motions approximate a Brownian random walk and that the particles can be treated as noninteracting. We measure the contact-interval (also called the waiting-time or interarrival-time), contact-count, and contact-duration distributions in populations of individuals undergoing noninteracting continuous-space-time random walks on a periodic two-dimensional plane (a torus) as functions of the population number density, walker radius, and random-walk step size. The contact-interval is exponentially distributed for times longer than the ballistic mean-free-collision time but not for times shorter than that, and the contact duration distribution is strongly peaked at the ballistic-crossing time for head-on collisions when the ballistic-crossing time is short compared to the mean step duration. While successive contacts between individuals are independent, the probability of repeat contact decreases with time after a previous contact. This leads to a negative duration dependence of the waiting-time interval and overdispersion of the contact-count probability density function for all time intervals. The paper demonstrates that for populations of small particles (with a walker radius that is small compared to the mean-separation or random-walk step size), the ballistic mean-free-collision interval, the ballistic-crossing time, and the random-walk-step duration can be used to construct temporal scalings which allow for common waiting-time, contact-count, and contact-duration distributions across different populations. Semi-analytic approximations for both the waiting-time and contact-duration distributions are also presented.

Job search, unemployment protection, and informal work

AbstractInformal work is a significant feature of labour markets in many developed countries, despite having unemployment protection (UP) programmes. We use a model of job search over the duration of unemployment to study how the structure of these programmes influences the incentive of the unemployed to engage in informal work while searching for formal jobs. Accounting for informality enables the model to jointly explain three known features on job search dynamics: a temporary re-employment spike, low search effort, and negative duration dependence. The quantitative analysis finds that both informality and unemployment can be reduced by redistributing (across either workers or programmes), rather than increasing, the overall UP budget.

Does persistence in using R&D tax credits help to achieve product innovations?

Despite the generosity of its tax system, Spain is far from EU countries in terms of R&D spending and innovation outcomes. A policy instrument commonly used to foster firms’ R&D investment are tax incentives. The use of this instrument is not generalized in firms spending on R&D, and only a fraction of firms are regular claimants. This paper investigates whether persistence in using tax credits is positively related to product innovations, beyond R&D investments. We consider that firms investing in qualified R&D and using tax credits regularly are likely to be firms aiming at innovating. By contrast, occasional tax credit users may be firms investing in R&D for different reasons, such as exploiting a business opportunity, or reducing their corporate tax burden, so that they may not prioritize innovating. Using a sample of Spanish manufacturing firms spanning 2001–2014, we first estimate persistence using a duration model accounting for firm observed and unobserved heterogeneity. Our results are consistent with negative duration dependence, indicating that the probability of ceasing in claiming tax credits decreases with the passage of time. Second, we estimate a count-data model and find that the number of product innovations positively depends on tax credit persistence only for SMEs.

Duration Dependence and Labor Market Experience

AbstractWe study whether unemployment duration dependence—the negative effect of a current unemployment spell on an individual's employment probability—varies with labor market experience. Using data from the National Longitudinal Survey of Youth and the Current Population Survey, we show that although there is negative duration dependence for experienced workers, it is mostly absent for new entrants to the labor force. This difference suggests that structural forces in addition to ex ante heterogeneity in job‐finding probabilities and dynamic selection may drive unemployment duration dependence. Our findings are robust to the econometric model used and to a number of demographic controls and time trends, as well as individual fixed effects. We also discuss whether a number of theories of duration dependence can explain our empirical findings.

What prolongs the duration of NEET status for youth? Evidence from Japanese panel data

This paper examines the determinants of transition to the labor force status for non-labor force youth, known as NEET (not in employment, education, or training). We use panel data of Japanese youth who experience the NEET status to estimate the competing risk model from transition out of the status. The results show that although many NEETs exit the status within a year, there exists a negative duration dependence of joblessness. We also find that higher educational qualifications and job experience improve the transition from NEET, the impact of which varies with gender with respect to educational background. For men, graduation from university or a graduate school promotes the transition from NEET, but for women, graduation from a professional school and junior college also promotes the transition. Considering the difference between regular and non-regular employment, women tend to engage in work as non-regular employees, while men tend to be unwilling to work in non-regular employment. The hurdle for employment might be relatively higher among men, because their reservation values for work may be higher relative to women.

Empirics of currency crises: A duration analysis approach

AbstractThis paper empirically analyzes the origins of currency crises for a group of OECD economies from 1970 through 1998. We apply duration analysis to examine how the probability of a currency crisis depends on the length of non‐crisis periods, contagion channels, and macroeconomic fundamentals. Our findings confirm the negative duration dependence of a currency crisis—the likelihood of speculative attack sharply increases at the beginning of non‐crisis periods and then declines over time until it abruptly rises again. The results also indicate the hazard of a crisis increase with high values of the volatility of unemployment rates, inflation rates, contagion factors—which mostly work through trade channels, unemployment rates, real effective exchange rate, trade openness, and size of economy. To address concerns regarding validity of the identified crisis episodes, we exploit crisis episodes that are identified by a more objective approach based on the extreme value theory. Our results are robust under various specifications including two different crisis event sets that are identified on monthly and quarterly basis.

Job Seekers’ Perceptions and Employment Prospects: Heterogeneity, Duration Dependence, and Bias

This paper uses job seekers’ elicited beliefs about job finding to disentangle the sources of the decline in job-finding rates by duration of unemployment. We document that beliefs have strong predictive power for job finding, but are not revised downward when remaining unemployed and are subject to optimistic bias, especially for the long-term unemployed. Leveraging the predictive power of beliefs, we find substantial heterogeneity in job finding with the resulting dynamic selection explaining most of the observed negative duration dependence in job finding. Moreover, job seekers’ beliefs underreact to heterogeneity in job finding, distorting search behavior and increasing long-term unemployment. (JEL D83, E24, J22, J64, J65)

Young people's labour market transitions: The role of early experiences

We use UK longitudinal survey data to model young people's transitions between employment, unemployment, education and a residual category made up of those neither in education nor economically active. Transitions from employment are shown to exhibit negative duration dependence regardless of destination, while transitions from unemployment only do so when the destination is employment. The results suggest the nature and length of males’ preceding spells affect transitions from unemployment to employment but that this is not the case for females. The combination of modelled effects is captured through simulations. These show that, for both males and females, a period neither in education nor economically active has more damaging long-term consequences for future employment than a period of unemployment.

War Duration and the Micro-Dynamics of Decision Making under Stress

Previous empirical research has demonstrated that war has negative duration dependence: the longer a war has already lasted, the harder it is to end. Many arguments have been advanced to explain this, including bargaining or commitment problems, domestic politics, entrapment dynamics, sunk costs, and cognitive and emotional biases. Drawing on recent empirical and experimental research in neuroscience, psychology, and stress physiology, this article will examine the micro-dynamics of human decision making in high-stress situations (such as prosecuting and negotiating to end a war) in order to connect these many approaches. In high-stress environments, cognitive functioning usually depletes over time, decreasing top-down regulation of emotions and stress arousal, and thereby increasing subcortical influence on decision making. Depleted cognitive functioning also decreases tolerance of uncertainty and ambiguity, two states endemic to the war termination process, which further exacerbates subcortical influence on decisions. As a result, actors’ ability to absorb and accurately assess information and to make effective decisions may be undermined. This article also connects these micro-dynamics of decision making under stress to some of the arguments previously advanced to explain war’s negative duration dependence.

Are the Spanish long-term unemployed unemployable?

Long-term unemployment reached unprecedented levels in Spain in the wake of the Great Recession and it still affects around 57% of the unemployed. We document the sources that contributed to the rise in long-term unemployment and analyze its persistence using state-of-the-art duration models. We find pervasive evidence of negative duration dependence, while personal characteristics such as mature age, lack of experience, and entitlement to unemployment benefits are key to understand the cross-sectional differences in the incidence of long-term unemployment. The negative impact of low levels of skill and education is muted by the large share of temporary contracts, but once we restrict attention to employment spells lasting at least 1 month these factors also contribute to a higher risk of long-term unemployment. Surprisingly, workers from the construction sector do not fare worse than similar workers from other sectors. Finally, self-reported reservation wages are found to respond strongly to the cycle, but much less to individual unemployment duration. In view of these findings, we argue that active labor market policies should play a more prominent role in the fight against long-term unemployment while early activation should be used to curb inflows.

Are the Spanish Long-Term Unemployed Unemployable?

Long-term unemployment reached unprecedented levels in Spain in the wake of the Great Recession and it still affects around 57% of the unemployed. We document the sources that contributed to the rise in long-term unemployment and analyze its persistence using state-of-the-art duration models. We find pervasive evidence of negative duration dependence, while personal characteristics such as mature age, lack of experience, and entitlement to unemployment benefits are key to understand the cross-sectional differences in the incidence of long-term unemployment. The negative impact of low levels of skill and education is muted by the large share of temporary contracts, but once we restrict attention to employment spells lasting at least one month these factors also contribute to a higher risk of long-term unemployment. Surprisingly, workers from the construction sector do not fare worse than similar workers from other sectors. Finally, self-reported reservation wages are found to respond strongly to the cycle, but much less to individual unemployment duration. In view of these findings, we argue that active labour market policies should play a more prominent role in the fight against long-term unemployment while early activation should be used to curb inflows.

Loss of Skill and Labor Market Fluctuations

This paper studies the effects of skill loss on aggregate labor market fluctuations. We develop a computationally tractable stochastic version of the Diamond-Mortensen-Pissarides model, wherein workers accumulate skills on the job and lose them after job destruction. Gradual skill loss, which captures the phenomenon of negative duration dependence, shifts the composition of the unemployment pool towards low-surplus workers. Sharp loss of skills, which captures the effects of job displacement, reduce the profits of hiring low-surplus and high-surplus workers. Therefore both sources of skill loss lower the average expected value of filling a vacancy, and magnify the response of job creation to aggregate shocks. Quantitatively, we find that labor market fluctuations increase substantially when these two mechanisms are combined and the probability of skill loss moves countercyclically.

Domestic Factors and Episodes of Gross Capital Inflows

This paper extends the literature on gross capital flows by looking into domestic factors that covary significantly with cross-country differences in the transitional likelihoods of moving between episodes of capital inflows. Applying a state-transition framework, we view states of gross capital inflows as “normal”, “surge”, and “stop”, following Forbes and Warnock (2012a and 2012b) approach in identifying extreme episodes for a sample of 55 advanced and emerging economies from 1980Q1 to 2014Q4. The empirical findings show that cross-country differences in transitional likelihoods are strongly associated with state-dependence variables such as duration and occurrence. There is evidence to suggest the presence of negative duration dependence on the transitional likelihood of moving between episodes such that the longer an economy spends in a given episode, the less likely it will exit that episode. However, duration and occurrence of episodes of gross capital inflows are also significantly correlated with domestic factors such as output volatility, de facto and de jure financial openness, and foreign reserves.

Sunk Costs, Firm Heterogeneity, Export Market Entry and Exit: Evidence from India

This paper analyses the role of sunk costs and firm heterogeneity in firm decision to enter and exit export markets. Employing rich firm-level data on Indian manufacturing firms, the study points out that sunk costs in terms of previous export experience significantly explain entry and exit decisions of firms in the export market. The first set of analysis involves estimation of dynamic discrete choice model using random effects probit correcting for initial conditions problem. We find evidence that previous export experience (sunk costs) matters for export decision. However, importance of sunk costs is found to depreciate rapidly. Further, analysis across sub-sample of firms accounting for firm heterogeneity factors like size and product level information supports the hypothesis of sunk costs. Second set of analysis involving firm survival in export markets using discrete-time hazard models shows evidence of negative duration dependence. We observe that those firms which continue to export for few years are less likely to exit from export markets.

A Longitudinal Analysis of GIS Entries and Exits

We focus on one particular pillar of the public retirement income network in Canada, namely, receipt outcomes of the Guaranteed Income Supplement (GIS) regime. This empirical analysis is carried out in a dynamic framework. We address the extent to which individuals enter the state of GIS receipt at various ages as well as the extent to which individuals who receive GIS benefits at the earliest age of eligibility subsequently exit the regime. We first measure these transition rates, and then we focus our analysis primarily on the impact of three attributes of recipients: changes in marital status, entry cohort, and current age. The econometric equations include simple transition models of both entries and exits, as well as hazard models of the probability of exit. Among our many empirical findings is a non-trivial incidence of delayed entry into the regime as well as exit from the regime conditional on prior receipt of benefits. Women who transit from married to single status are more likely to enter, but the opposite finding is discerned for men. The hazard model for the risk of exiting the GIS regime conditioned on the duration of the ongoing spell of receipt reveals a sharp pattern of negative duration dependence.

Optimal Unemployment Insurance with Endogenous Negative Duration Dependence

This article characterizes optimal unemployment insurance (UI) in an economy with endogenous negative duration dependence in hiring rates for the unemployed. The characterization generalizes the standard Baily–Chetty result and is independent of the particular mechanism generating endogenous hiring rates. I find that at the social optimum, UI equates the moral hazard cost with the sum of the insurance benefit and a new externality correction term. The sign of this externality correction term depends, in part, on the responsiveness of hiring rates to the UI benefit. I show how the effect of UI on hiring rates in turn depends on the particular assumptions about firm behavior, considering the cases of employer screening and human capital depreciation models.

A journey home: What drives how long people are homeless?

This paper uses survival analysis to model exits from two alternative forms of homelessness: sleeping on the streets (‘literal homelessness’) and not having a home of one's own (‘housing insecurity’). We are unique in being able to account for time-invariant, unobserved heterogeneity. Like previous researchers, we find results consistent with negative duration dependence in models which ignore unobserved heterogeneity. However, controlling for unobserved heterogeneity, we find that duration dependence has an inverted U-shape with exit rates initially increasing (indicating positive duration dependence) and then falling. Exit rates out of both literal homelessness and housing insecurity fall with age. Women are more likely than men to exit housing insecurity for a home of their own, but are less likely to exit literal homelessness. Persons with dependent children have higher exit rates. Finally, education seems to protect people from longer periods of housing insecurity.

Youth Unemployment Duration and Competing Exit States: What Hides Behind Long Spells of Black Youth Unemployment in South Africa?

AbstractThe paper examines the role of personal characteristics in not only determining the unemployment duration but also the probability of unemployment terminating with transitions into wage‐employment, self‐employment or higher education. Formulated within the survival analysis framework using the Labour Market Entry Survey, this study provides the first empirical evidence on black youth unemployment duration in South Africa. The results of the analysis indicate non‐monotonic duration dependence with other individual, household and locational covariates exerting very different impacts on the state‐specific exit rates from unemployment for both young men and women. The scarring impact evident in negative duration dependence and gender‐specific findings point to the need for more informed policy formulation.