A Stigma Theory of Unemployment Duration

Elazar Berkovitch

Chapter 2 in Advances in the Theory and Measurement of Unemployment, 1990, pp 20-56 from Palgrave Macmillan

Abstract: Abstract Empirical studies of unemployment have shown that both the wage and the probability of leaving unemployment (the hazard rate) are negatively correlated with unemployment duration.1 The traditional explanation for unemployment, based upon search theory, does not yield this result.2 The solution developed in previous studies for this problem is heterogeneity, or ‘unobserved characteristics’. Different workers face different distributions of wage offers and, thus, have different reservation wages and different probabilities of leaving unemployment. Through time, workers with higher probabilities of leaving unemployment will leave first. Because of this selectivity problem, the sample of length of unemployment spells, over time, consists of more and more unemployed workers with lower hazard rates.

Keywords: Hazard Rate; Reservation Wage; Unemployed Worker; Bargaining Problem; Nash Bargaining Solution (search for similar items in EconPapers)
Date: 1990
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-10688-2_2

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DOI: 10.1007/978-1-349-10688-2_2

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