Abstract
Using a Cox proportional hazard model that allows for a flexible time dependence in order to incorporate business cycle effects, we analyze the determinants of re-employment probabilities of young workers in the USA from 1978–1989. We find considerable changes in the chances of young workers finding jobs over the business cycle despite the fact that personal characteristics of those starting jobless spells do not vary much over time. Therefore, government programs that target specific demographic groups may change individuals’ positions within the queue of job seekers, but may only have a more limited impact on average re-employment probabilities. Living in an area with high local unemployment reduces re-employment chances as does being in a long spell of non-employment. However, the damage associated with being in a long spell seems to be reduced somewhat if a worker is unemployed in an area with high overall unemployment.
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Notes
We have not included more than five years of labor market data for any of the observations in our sample. It would have been possible for those who finished school in the early years of the cohort (e.g. 1979, 1980) to have more years of data but then we would have ended up requiring the earlier school leavers not to have returned to school for a longer period of time than for later school leavers.
Plots of the quartiles are available from the authors on request.
The computational costs of these procedures are quite high. Every evaluation of the partial likelihood function is an operation of order N 2 where N is the number of spells. Since we have around 6,000 spells the optimization routines take a very long time. However, as suggested to us by Bruce Meyer, this may be reduced by averaging over a sample from the risk set, rather than averaging over the entire risk set.
Therefore one might interpret the receipt of unemployment benefit as another measure of previous labor market experience that picks up whether or not the most recent employment spell was long enough to make the individual eligible for unemployment insurance.
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Acknowledgements
We would like to thank Phil Johnson for excellent research assistance on this project and Olivier Blanchard, Bruce Meyer, Jonathon Thomas, two anonymous referees, and participants in seminars at the NBER, MIT, and the University of British Columbia for comments on an earlier draft.
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Imbens, G.W., Lynch, L.M. Re-employment probabilities over the business cycle. Port. Econ. J. 5, 111–134 (2006). https://doi.org/10.1007/s10258-006-0006-5
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DOI: https://doi.org/10.1007/s10258-006-0006-5