Working Paper Revision
The Role of Observed and Unobserved Heterogeneity in the Duration of Unemployment Spells
Abstract: This paper studies the degree to which observable and unobservable worker characteristics account for the variation in the aggregate duration of unemployment. I model the distribution of unobserved worker heterogeneity as time varying to capture the interaction of latent attributes with changes in labor-market conditions. Unobserved heterogeneity is the main explanation for the duration dependence of unemployment hazards. Both cyclical and low-frequency variations in the mean duration of unemployment are mainly driven by one subgroup: workers who, for unobserved reasons, stay unemployed for a long time. In contrast, changes in the composition of observable characteristics of workers have negligible effects.
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Part of Series: Finance and Economics Discussion Series
Publication Date: 2022-03-25
- Working Paper Revision: The Role of Observed and Unobserved Heterogeneity in the Duration of Unemployment Spells