MODELLING THE PROBABILITY OF LEAVING UNEMPLOYMENT: COMPETING RISKS MODELS WITH FLEXIBLE BASELINE HAZARDS

W. Narendranathan and M.B. Stewart
Authors registered in the RePEc Author Service: Wiji Arulampalam

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Unemployment durations are generally modelled by specifying the conditional probability of leaving unemployment (the hazard function). Existing studies for Britain all use very restrictive parametric specifications of the hazard function, mostly commonly Weibull in form. These restrictions potentially bias the estimated effects, particuarly those of the time-varying economic variables and the baseline hazard. This paper investigates models for the probability of leaving unemployment with these restrictions removed. We use semi-parametric methods to estimate models with completely unrestricted baseline hazards and a model involving flexible step-function approximations to the baseline hazard. The Weibull is found not to give a satisfactory representation of the baseline hazard and its use is found to distort the pattern of unemployment income effects over the length of the spell. The existing studies for Britain is also model the exit probability from unemployment rather than the probability of entering a job, despite generally interpreting the evidence as being about the latter probability. We use a competing risks model to distinguish exit into employment from exit into alternative states. We find that the single risk model of exit understates the effects of income in and out of work on the probability of entering a job.

Keywords: unemployment; risk; duration; evaluation; Hazard functions; Survival analysis; Competing risks models; Unemployment durations; Semi-parametric estimation; Heterogeneity (search for similar items in EconPapers)
Pages: 26 pages
Date: 1989
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Citations: View citations in EconPapers (56)

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Related works:
Journal Article: Modelling the Probability of Leaving Unemployment: Competing Risks Models with Flexible Base‐Line Hazards (1993)
Working Paper: Modelling the Probability of Leaving Unemployment: Competing Risks Models with Flexible Baseline Hazards (1989)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:331

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