Decomposing Duration Dependence in a Stopping Time Model
We develop a dynamic model of transitions in and out of employment. A worker finds a job at an optimal stopping time, when a Brownian motion with drift hits a barrier. This implies that the duration of each worker's jobless spells has an inverse Gaussian distribution. We allow for arbitrary heterogeneity across workers in the parameters of this distribution and prove that the distribution of these parameters is identified from the duration of two spells. We use social security data for Austrian workers to estimate the model. We conclude that dynamic selection is a critical source of duration dependence.
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Copy CitationFernando E. Alvarez, Katarína Borovičková, and Robert Shimer, "Decomposing Duration Dependence in a Stopping Time Model," NBER Working Paper 22188 (2016), https://doi.org/10.3386/w22188.Download Citation
Published Versions
Fernando Alvarez & Katarína Borovičková & Robert Shimer, 2024. "Decomposing Duration Dependence in a Stopping Time Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(6), pages 3151-3189. citation courtesy of 
Fernando Alvarez & Katarína Borovičková & Robert Shimer, 2024. "Decomposing Duration Dependence in a Stopping Time Model," Review of Economic Studies, vol 91(6), pages 3151-3189.
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