DP3922 Job Search with Nonparticipation

Author(s): Paul Frijters, Bas van der Klaauw
Publication Date: June 2003
Keyword(s): duration dependence, endogenous nonparticipation, heterogeneity, non-stationary job search, simulated maximum likelihood, structural empirical analysis
JEL(s): C15, C41, J64
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3922

In a non-stationary job search model we allow unemployed workers to have a permanent option to leave the labour force. Transitions into nonparticipation occur when reservation wages drop below the utility of being nonparticipant. Taking account of these transitions allows the identification of the duration dependence in the job offer arrival rate and the wage offer distribution. We estimate the structural model with individual data from the German Socio-Economic Panel and use simulated maximum likelihood. The results show that the presence of significant negative duration dependence in the wage offer distribution causes reservation wages to decrease. The rate at which job offers arrive is constant over the unemployment duration. These findings provide micro-evidence that the job search environment of unemployed workers is non-stationary because of loss of skills.