Duration Dependence and Labor Market Experience

Abstract

We study whether unemployment duration dependence—the negative effect of a current unemployment spell on an individual's employment probability—varies with labor market experience. Using data from the National Longitudinal Survey of Youth and the Current Population Survey, we show that although there is negative duration dependence for experienced workers, it is mostly absent for new entrants to the labor force. This difference suggests that structural forces in addition to ex ante heterogeneity in job-finding probabilities and dynamic selection may drive unemployment duration dependence. Our findings are robust to the econometric model used and to a number of demographic controls and time trends, as well as individual fixed effects. We also discuss whether a number of theories of duration dependence can explain our empirical findings.