Open AccessThe Role of Observed and Unobserved Heterogeneity in the Duration of Unemployment Spells
Author(s) -
Hie Joo Ahn
Publication year - 2022
Publication title -
finance and economics discussion series
Language(s) - English
Resource type - Journals
eISSN - 2767-3898
pISSN - 1936-2854
DOI - 10.17016/feds.2016.063r1
Subject(s) - unobservable , duration (music) , unemployment , economics , econometrics , contrast (vision) , aggregate (composite) , demographic economics , labour economics , macroeconomics , art , materials science , literature , artificial intelligence , computer science , composite material
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.