Duration Dependence and Labor Market Conditions
The likelihood of receiving a callback for a job interview sharply declines with unemployment duration.
According to a recent report by the Congressional Budget Office, long-term unemployment may "produce a self-perpetuating cycle wherein protracted spells of unemployment heighten employers' reluctance to hire those individuals, which in turn leads to even longer spells of joblessness." Policymakers and researchers alike tend to believe that this adverse effect of a long spell of unemployment undermines the smooth functioning of the labor market and entails large social costs. Economists refer to the phenomenon as "negative duration dependence."
In Duration Dependence and Labor Market Conditions: Theory and Evidence from a Field Experiment (NBER Working Paper No. 18387), authors Kory Kroft, Fabian Lange, and Matthew Notowidigdo confirm that the likelihood of receiving a callback for a job interview sharply declines with unemployment duration. This effect is especially pronounced during the first eight months after becoming unemployed. Their estimates suggest that this effect is quantitatively important, and that duration dependence is stronger when jobs are relatively abundant. These results imply that employers statistically discriminate against workers with longer unemployment durations and that employer screening plays an important role in generating duration dependence.
To study duration dependence, the authors submitted fictitious resumes to real, online job postings in each of the 100 largest metropolitan areas in the United States, and then tracked "callbacks" from employers for each submission. In total, they "applied" to roughly 3,000 job postings in Sales, Customer Service, Administrative Support, and Clerical job categories, submitting roughly 12,000 resumes. The resumes they created characterized the "applicant's" employment status and, if unemployed, the length of the current unemployment spell, which ranged from 1 to 36 months and was randomly assigned. As a result, this experiment directly uncovered duration dependence arising through employers' beliefs about unemployed workers.
--Lester PickerThe Digest is not copyrighted and may be reproduced freely with appropriate attribution of source.