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Duration Dependence and Labor Market Conditions: Theory and Evidence from a Field Experiment

Kory Kroft, Fabian Lange () and Matthew Notowidigdo

No 18387, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the role of employer behavior in generating "negative duration dependence" -- the adverse effect of a longer unemployment spell -- by sending fictitious resumes to real job postings in 100 U.S. cities. Our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker's unemployment spell, with the majority of this decline occurring during the first eight months. We explore how this effect varies with local labor market conditions, and find that duration dependence is stronger when the labor market is tighter. We develop a theoretical framework that shows how the sign of this interaction effect can be used to discern among leading models of duration dependence based on employer screening, employer ranking, and human capital depreciation. Our results suggest that employer screening plays an important role in generating duration dependence; employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets.

JEL-codes: J64 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-exp and nep-lab
Note: LS
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Published as Duration Dependence and Labor Market Conditions: Evidence from a Field Experiment* Kory Kroft University of Toronto Fabian Lange McGill University, IZA, and CESifo Matthew J. Notowidigdo The Quarterly Journal of Economics (2013) doi: 10.1093/qje/qjt015 First published online: April 16, 2013

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