Individuals’ Unemployment Durations over the Business Cycle

Using a large panel of administrative records on unemployment durations this study confirms the predictions of the ranking model of Blanchard and Diamond (1994) that an individual’s probability of leaving unemployment decreases with unemployment duration and increases with labour market tightness. I find no strong empirical evidence to support the further prediction of the ranking model that genuine negative duration dependence is stronger the more depressed the labour market. Moreover I show that the findings in some previous studies in line with this latter prediction of the ranking model may arise from failing to control for cyclical fluctuations in the composition of the newly unemployed. In line with the matching model of Lockwood (1991) I find that genuine negative duration dependence is slightly stronger the tighter the labour market for unemployment durations up to four years.