Unemployment Spells Research Articles

Job Search of Older Unemployed Workers: Evidence from Longitudinal Data

Previous research has shown that older unemployed workers reduce their reservation wage at higher rates than their younger counterparts. However, we know little about why this is the case. In this paper, we focus on the psychological toll of joblessness for older workers as they experience long spells of unemployment. Using longitudinal data on unemployed workers in New Jersey, we first show that the negative emotions of older workers during unemployment intensify at a higher rate than younger workers as they remain unemployed. We then provide early evidence that older workers reduce their reservation wage at a higher rate, because remaining unemployed is psychologically more costly for older workers than their counterparts. We discuss the implications of our findings.

Information, reflection, and successful job search: A labor market policy experiment

AbstractJobseekers, especially young people with little experience on the job market, face several challenges. They need to know which jobs are suited for them, where to find them, how to apply, and they need resilience in the face of repeated rejections. Previous research has shown that receiving information and reflecting on how to search for a job enhance self‐efficacy and search motivation, thereby reducing the duration of unemployment spells. Following up on these results, we conducted an experiment in cooperation with the Austrian Ministry of Social Affairs which combines an “information nudge” in the form of a short video‐clip with what we call “reflection nudge” in the form of an online survey. We find that a treatment combining reflection and information reduces job search duration of young unemployed people with a low level of formal education. Considering the low costs of the intervention, efficiency is very high.

Finding a job after unemployment—education as a moderator of unemployment scarring in Norway and German-speaking Switzerland

Abstract Using data collected with a factorial survey experiment in Norway and Switzerland, we analyze how employers react to unemployment spells when screening job applications. Our focus is on whether unemployment scarring varies depending on the applicants’ level of education and the duration and timing of the unemployment spell. We find unemployment scars of similar size in the two countries. Interestingly, education moderates the strength of unemployment scarring: in the Swiss context, graduates from vocational education and training (VET) programs are the most severely affected by unemployment, even years after regaining employment; this is not the case in Norway. We contribute to the unemployment scarring literature and to comparative scholarship on school-to-work transitions by exposing a trade-off of dual VET systems, which are known to provide a safety net from unemployment. Our findings show that these same systems can cause scars that are particularly long-lasting to VET graduates who fall into unemployment.

The effect of unemployment duration on reservation wages: Evidence from Belgium

This paper studies the effect of unemployment duration on asking (reservation) wages. We provide new evidence based on unique longitudinal data on unemployed workers in Belgium, who were surveyed about self-reported reservation wages at the start of the unemployment spell, and after 3 and 6 months of unemployment duration. Our estimates suggest that reservation wages decline with unemployment duration by about 0.4 percent per month, or 5 percent per year, and that cross-sectional estimates are biased upward. We find stronger declines among men and among workers who earned high wages in their previous jobs. The paper discusses these findings in the light of learning models and discusses the implications of falling reservation wages for the debate on the effect of unemployment on wages.

Drivers of Automation and Consequences for Jobs in Engineering Services: An Agent-Based Modelling Approach.

New technology is of little use if it is not adopted, and surveys show that less than 10% of firms use Artificial Intelligence. This paper studies the uptake of AI-driven automation and its impact on employment, using a dynamic agent-based model (ABM). It simulates the adoption of automation software as well as job destruction and job creation in its wake. There are two types of agents: manufacturing firms and engineering services firms. The agents choose between two business models: consulting or automated software. From the engineering firms’ point of view, the model exhibits static economies of scale in the software model and dynamic (learning by doing) economies of scale in the consultancy model. From the manufacturing firms’ point of view, switching to the software model requires restructuring of production and there are network effects in switching. The ABM matches engineering and manufacturing agents and derives employment of engineers and the tasks they perform, i.e. consultancy, software development, software maintenance, or employment in manufacturing. We find that the uptake of software is gradual; slow in the first few years and then accelerates. Software is fully adopted after about 18 years in the base line run. Employment of engineers shifts from consultancy to software development and to new jobs in manufacturing. Spells of unemployment may occur if skilled jobs creation in manufacturing is slow. Finally, the model generates boom and bust cycles in the software sector.

Measuring labor-force participation and the incidence and duration of unemployment

The underlying data from which the U.S. unemployment rate, labor-force participation rate, and duration of unemployment are calculated contain numerous internal contradictions. This paper catalogs these inconsistencies and proposes a unified reconciliation. We find that the usual statistics understate the unemployment rate and the labor-force participation rate by about two percentage points on average and that the bias in the latter has increased over time. The BLS estimate of the average duration of unemployment substantially overstates the true duration of uninterrupted spells of unemployment and misrepresents what happened to average durations during the Great Recession and its recovery.

Unemployment prevention: The role of Human Resource Management in job-to-job transitions in the event of redundancy

In downsizing organisations, redundant workers suffer from insecurities about work and income. Social security provides income security to the unemployed in the event of job loss. The role played by employers in unemployment prevention for redundant workers, and the effects on unemployment spells and transitions on the labour market, are neglected in both the social policy and HRM literatures. This article addresses the following question: Which factors play a role in the decision to offer job-to-job support and in determining its effect? This article provides the context for the theoretical assumptions regarding why employers initiate job-to-job measures for redundant employees and distinguishes the different types of measures based on a literature review. Secondly, this article contributes to empirical knowledge in the field of unemployment prevention among employers and the effects of job-to-job activities facilitated by employers on redundant workers’ unemployment spells. A two-wave study was conducted on a sample of 2,258 Dutch redundant workers. The study shows that age, breadwinner status and gender are important predictors of unemployment duration after involuntary dismissal. The findings show that investing in the human capital of redundant workers by providing training and education and individual coaching, for example, are associated with a reduced unemployment spell. In our model, in which we controlled for other variables, we found that when one received training, education or individual coaching shortly before or after the dismissal, one was unemployed for an average of almost three months less.

Empirical analysis of urban youth unemployment in Ethiopia

AbstractLack of adequate jobs and long unemployment duration becomes a challenge for urban youth in Ethiopia. This study empirically examines youth unemployment and its determinants in urban Ethiopia. It aims to examine the incidences and durations of youth unemployment and their determinant factors. In addition to logistic regression model, a nonparametric Kaplan–Meier survival analysis and Cox proportional hazards model are used. The results indicate that both the incidence and duration of youth unemployment is higher in urban Ethiopia. The hazards model shows that the hazard rate of leaving unemployment are significantly related to individual characteristics such as age and educational level of the youth, and labor market factors such as experience and job market information. Gender and regional disparities are observed. Young women exit unemployment much slower than men and the exit rate increases with age. Big and relatively more urbanized regions have a higher incidence and longer duration of unemployment spells than the small regions. Finally, based on the results, the study suggests that there is a need to adopt target policies that will promote skills and employment opportunities for the youth. Providing entrepreneurship training and startup capital to encourage youth to create rather than seek jobs is critical in this regard.

The Pro-cyclical Unemployment Gender Gap: A Household Occupational Portfolio Choice?

An empirical regularity in the US business cycles is that in recessions men's unemployment rate rises faster than women. This stylized-fact raises both empirical and theoretical questions. The notion of such distinctive pattern in the data is addressed with another regularity through an expenditure lens: can the relative volatility of consumption expenditures on non-durable goods, durable goods, and services inform about the corresponding occupational labor demand? And what if occupational demand meets a gender segregated occupational supply? By mapping a gender-colored occupational index into the three aggregate types of real personal consumption expenditures, we are able to show a correspondence between gender unemployment dynamics and consumption volatility. As for the cause, we develop a model that shows that gender differences in risk-aversion can lead to labor segregation based on occupational economic risk, which , in turn is realized in terms of the likelihood of unemployment spells. We look at the time series data of consumption expenditure as well as different gender- decomposition of labor market variables provided by the Bureau of Labor Statistics for the United States for the period 2000-2019.

Employer tenure in gays, lesbians and their straight counterparts

PurposeThis article aims to shed more light on seemingly contradicting labour market outcomes of lesbians: they were found to have similar unemployment rates as straight women but their unemployment spells are significantly shorter. No such contradiction is observed for gays who seem to have on average a higher unemployment rate and longer unemployment spells compared to straight men.Design/methodology/approachThe main hypothesis is that lesbian and gay employees spend ceteris paribus shorter time working for a given employer (employer tenure) than comparable straight people. This hypothesis is tested on EU Labour Force Survey data using multi-level regression model.FindingsConsistently with the predictions, lesbians and gays were found to have significantly shorter employer tenure than their straight counterparts. These differences remained significant after controlling for individual, workplace and occupational characteristics. The results suggest that shorter employer tenure of lesbians and (possibly) gays is driven by labour demand factors.Originality/valueTo author's knowledge this is the first large-scale quantitative study that compares the employer tenure between lesbians, gays and comparable heterosexuals. The study provides additional insight into mechanisms that lead to (lack of) differentials in unemployment probability between these groups.

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.

Do Startup Employees Earn More in the Long Run?

Evaluating the attractiveness of startup employment requires an understanding of both what startups pay and the implications of these jobs for earnings trajectories. Analyzing Danish registry data, we find that employees hired by startups earn roughly 17% less over the next 10 years than those hired by large, established firms. About half of this earnings differential stems from sorting—from the fact that startup employees have less human capital. Long-term earnings also vary depending on when individuals are hired. Although the earliest employees of startups suffer an earnings penalty, those hired by already-successful startups earn a small premium. Two factors appear to account for the earnings penalties for the early employees: Startups fail at high rates, creating costly spells of unemployment for their (former) employees. Job-mobility patterns also diverge: After being employed by a small startup, individuals rarely return to the large employers that pay more.

Searching for Job Security and the Consequences of Job Loss

Job loss comes with large present value earnings losses which elude workhorse models of unemployment and labor market policy. I propose a parsimonious model of a frictional labor market in which jobs differ in terms of unemployment risk and workers search off- and on-the-job. This gives rise to a job ladder with slippery bottom rungs where unemployment spells beget unemployment spells. I allow for human capital to respond to time spent out of work and estimate the framework on German Social Security data. The model captures the joint response of wages, employment, and unemployment risk to job loss which I measure empirically. The key driver of the “unemployment scar” is the loss in job security and its interaction with the evolution of human capital.

Labor Market Hardships and Preferences for Public Sector Employment and Employers: Evidence from Russia

A growing literature connects labor market hardships to stronger preferences for government welfare and redistribution programs. Potential preference shifts with respect to other types of state involvement in the economy, however, have gone unexplored. We draw on both longitudinal and pseudo-panel data from Russia to explore how labor market hardships relate to preferences for public sector employment and employers. In fixed effects specifications, we demonstrate that feelings of job insecurity, experiences with wage arrears, and spells of unemployment all increase the attractiveness of work in the public sector. Pseudo-panel data provide only mixed evidence as to whether such effects endure over the longer run.

The Effects of Shortening Potential Benefit Duration: Evidence from Regional Cut-Offs and a Policy Reform

We quantify labour market effects of changes in the potential benefit duration (PBD) in Poland. Individual workers' PBD depends on the county unemployment rate relative to the national average - 12 months of PBD above a cut-off of 125 per cent and 6 months below. This cut-off shifted from 125 to 150 per cent in a 2009 reform. We utilize i) the natural experiment of the reform, and ii) the sharp discontinuity generated by the cut-offs to estimate effects of shortening the PBD. Our administrative data cover unemployment spells for prime age workers during the years 2006-2018. A one-month shorter PBD decreases average benefit duration by 0.5 months and average unemployment duration by 0.4 months. The PBD reduction by six months increased the job finding rate within the first 9 months by 6 percentage points. Using the stock of unemployed per county, we find evidence for positive aggregate employment effects.ment duration by 0.4 months. The PBD reduction by six months increased the job finding rate within the first 9 months by 6 percentage points. Using the stock of unemployed per county, we find evidence for positive market-level employment effects.

No Stratified Effect of Unemployment on Incomes: How the Market, State, and Household Compensate for Income Loss in the United Kingdom and Switzerland

AbstractUnemployment is a critical life event that may affect the income trajectories of displaced workers very unequally. It may lead to cumulative disadvantage and hit vulnerable groups hardest. Alternatively, it may level the playing field because higher classes have more to lose. We analyse heterogeneous effects of unemployment on income for the United Kingdom and Switzerland, using two household panels—Understanding Society 2009–2017 and the Swiss Household Panel 1999–2017—and distinguishing two sources of income: from the labour market and welfare state, at the level of individuals and households. We use a difference-in-differences design by matching unemployed to employed workers and estimating fixed-effects regressions. Results show that individual labour income drops in the 2 years after an unemployment spell by 20 and 25 per cent in Switzerland and by 25 and 55 per cent in the United Kingdom. Welfare state transfers reduce these losses by half in Switzerland, but have only a marginal impact in the United Kingdom. In both countries, income losses do not differ much across social classes. If anything, they are smaller in the working class. We thus find no evidence for cumulative disadvantage. The middle classes face a lower risk of becoming unemployed, but are not less vulnerable to its consequences.

Benefit duration, job search behavior and re-employment

This paper studies how the potential duration of unemployment benefits affects early job search behavior and re-employment outcomes. We exploit an unexpected reform of the German unemployment insurance (UI) scheme in 2008, which increased the potential benefit duration from 12 to 15 months for benefit recipients of age 50 to 54. Based on detailed survey data and a difference-in-differences design, we estimate that one additional month of potential benefits reduces early job applications by around 10%. Using social security data, we further find that the extension of benefits increases the average nonemployment duration of individuals entering UI after the reform. Among individuals who got treated at later stages of their unemployment spell, the increased UI coverage does not appear to come at the cost of longer nonemployment. A cautious back-of-the-envelope calculation reveals substantial job finding returns to early search effort.

Consumption dynamics under time-varying unemployment risk

In response to an adverse labor-market shock, a calibrated heterogeneous-agent model predicts that aggregate spending on durable goods falls mainly due to the ex-ante increase in income uncertainty caused by higher unemployment risk. In contrast, aggregate spending on nondurable goods falls mainly due to the ex-post income losses associated with realized unemployment spells. When households hold little liquid assets, the nondurable spending response is amplified, whereas the durable spending response is dampened. These differences stem from micro-level adjustment frictions involved in purchases of durable goods. The model is corroborated with evidence from micro survey data.

Life-cycle welfare losses from rules-of-thumb asset allocation

How should workers invest over the life-cycle? Should they follow some typical prescriptions (“rules of thumb”) in personal finance implying higher equity investments when young? We show that the answer hinges on the risk of long-term unemployment spells, entailing permanent declines in workers’ future earnings prospects. Absent unemployment risk, extant prescriptions deliver portfolios that are close to optimal, implying negligible welfare losses. They instead lead to sizeable welfare losses (3%–9% of annual consumption) when the risk of human capital depreciation following long-term unemployment is considered and realistically calibrated to the U.S. labor market. These losses stem from excess risk taking when young investors face uncertainty about future labor and pension incomes. This result points to a new design for pension plans offered by long-term institutional investors.

Unemployment Insurance and Job Search Behavior

AbstractHow does unemployment insurance (UI) affect unemployed workers’ search behavior? Search models predict that until benefit exhaustion, UI depresses job search effort and increases reservation wages. Over an unemployment spell, search effort should increase up to benefit exhaustion and stay high thereafter. Meanwhile, reservation wages should decrease up to benefit exhaustion and stay low thereafter. To test these predictions, we link administrative registers to data on job search behavior from a major online job search platform in France. We follow over 400,000 workers, as long as they remain unemployed. We analyze the changes in search behavior around benefits exhaustion and take two steps to isolate the individual response to unemployment benefits. First, our longitudinal data allows us to correct for changes in sample composition over the spell. Second, we exploit data on workers eligible for 12–24 months of UI as well as workers ineligible for UI, to control for behavior changes over the unemployment spell that are independent of UI. Our results confirm the predictions of search models. We find that search effort (the number of job applications) increases by at least 50% during the year preceding benefits exhaustion and remains high thereafter. The target monthly wage decreases by at least 2.4% during the year preceding benefits exhaustion and remains low thereafter. In addition, we provide evidence for duration dependence: workers decrease the wage they target by 1.5% over each year of unemployment, irrespective of their UI status.