Working Paper: CEPR ID: DP3922
Authors: Paul Frijters; Bas van der Klaauw
Abstract: In a non-stationary job search model we allow unemployed workers to have a permanent option to leave the labour force. Transitions into nonparticipation occur when reservation wages drop below the utility of being nonparticipant. Taking account of these transitions allows the identification of the duration dependence in the job offer arrival rate and the wage offer distribution. We estimate the structural model with individual data from the German Socio-Economic Panel and use simulated maximum likelihood. The results show that the presence of significant negative duration dependence in the wage offer distribution causes reservation wages to decrease. The rate at which job offers arrive is constant over the unemployment duration. These findings provide micro-evidence that the job search environment of unemployed workers is non-stationary because of loss of skills.
Keywords: Duration Dependence; Endogenous Nonparticipation; Heterogeneity; Nonstationary Job Search; Simulated Maximum Likelihood; Structural Empirical Analysis
JEL Codes: C15; C41; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| job offer arrival rate (J63) | probability of transitioning to nonparticipation (J26) |
| wage offer distribution (J31) | probability of transitioning to nonparticipation (J26) |
| unemployment duration (J64) | wage offer distribution (J31) |
| reservation wage (R21) | probability of transitioning to nonparticipation (J26) |
| unemployment duration (J64) | reservation wage (R21) |
| wage offer distribution (J31) | reservation wage (R21) |