State Dependence in Unemployment: Mismatching or Changing Work Ethics?

• In Event: 212 - Section on Inequality, Poverty and Mobility Roundtables (one-hour)
  In Refereed Roundtable: Table 10. Labor and Inequality

Abstract

Although the positive relation between early and future unemployment spells is well established, the question on how and why this relationship exists still remains not fully obtained. This article extends this line of research by testing two accounts regarding the process underlying the state dependence. The signaling account posits that the positive relationship between early and future unemployment is the result of employers’ reluctance to hire previously unemployed workers. The working ethics account suggests that previous unemployment most likely affects individual’s own work ethics, which in turn increases the likelihood of future unemployment. Using longitudinal data from the Dutch OSA panel with rich information on worker’s (un)employment histories and their work ethics over the period 1985-2000, this study is one of the first to disentangle signaling from behavioral effects in state dependence. Findings from panel probit models strongly suggest that previous unemployment leads to future unemployment because it affects unemployed workers’ attractiveness to prospective employers rather than workers’ own readiness to work.

Author

• Irma Mooi-Reci, University of Melbourne