Unemployment Persistence in the West German Labour Market: Negative Duration Dependence or Sorting?

Abstract

The paper tests for negative duration dependence in West German unemployment in the presence of unobserved population heterogeneity. The analysis is based of a microeconometric model estimated on the German Socio-Economic Panel covering the period 1983 to 1995. I find that, after controlling for observed and unobserved population heterogeneity, individual re-employment probabilities are constant or even increase slightly with duration and, thus, reject the hypothesis that the high and increasing share of long-term unemployment in West Germany can be explained by structural negative duration dependence. Copyright 2001 by Blackwell Publishing Ltd