Decomposing duration dependence: Skill depreciation vs. statistical discrimination

• Main Authors: BAYDUR, Ismail, XU, Jianhuan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: unemployment duration dependence; skill depreciation; statistical discrimination; Behavioral Economics; Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/2514; https://ink.library.smu.edu.sg/context/soe_research/article/3513/viewcontent/duration_project_wp.pdf
• Institution: Singapore Management University

This paper develops a random matching model with unobserved worker heterogeneity and learning about worker types from unemployment duration. The model features negative duration dependence that stems from unobserved heterogeneity as well as statistical discrimination and skill depreciation. We estimate our model using micro-level data from Current Population Survey (CPS) and we decompose the contribution of each channel to job finding rates by duration. We find that shutting down statistical discrimination substantially increases the job finding rates of the long-term unemployed while skill depreciation mainly affects the medium-term unemployed.