Long-Term Unemployment and the Great Recession: The Role of Composition, Duration Dependence, and Nonparticipation

By Kory Kroft, Fabian Lange, Matthew J. Notowidigdo, Lawrence F. Katz. Journal of Labor Economics, 2016

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We explore the role of composition, duration dependence, and labor force nonparticipation in accounting for the sharp increase in the incidence of long-term unemployment (LTU) during the Great Recession. We show that compositional shifts account for very little of the observed increase in LTU. Using panel data from the Current Population Survey for 2002–7, we calibrate a matching model that allows for duration dependence in unemployment and transitions between employment, unemployment, and nonparticipation. The calibrated model accounts for almost all of the increase in LTU and much of the observed outward shift in the Beveridge curve between 2008 and 2013.

Subfields: Economics and Econometrics, General Health Professions, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/b5f846bc78d00c600658cc951f8eb59193ae6917

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Citations in the corpus

Job Seekers’ Perceptions and Employment Prospects: Heterogeneity, Duration Dependence, and Bias (2018, unknown): “This finding is surprising since standard theoretical models with human capital depreciation (see Acemoglu [1995] and Ljungqvist and Sargent [1998]), stock-flow sampling (see Coles and Smith [1998]) or with employer-screening based on unemployment duration (see Lockwood [1991], and Kroft et al. [201”
UNEMPLOYED BUT OPTIMISTIC: OPTIMAL INSURANCE DESIGN WITH BIASED BELIEFS (2015, unknown): “For example, the high incidence of long-term unemployment, in particular during the Great Recession (Kroft et al., 2013), could be the result of beliefs adjusting slowly to deteriorating employment prospects during the unemployment spell and during recessions.”
What Works? A Meta Analysis of Recent Active Labor Market Program Evaluations (2015, background): “As noted by Krueger, Judd, and Cho (2014) and Kroft et al. (2016), the number of long term unemployed rises rapidly as a recession persists.”
Consumer Spending during Unemployment: Positive and Normative Implications (2019, unknown): “This pattern might be consistent with unobserved heterogeneity (Paserman 2008), duration dependence (Kroft et al. 2016) or reference dependence (DellaVigna et al.”