An Econometric Analysis of Individual Unemployment Duration in West Germany

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In contemporary labor economics increasing attention is paidto the fact that unemployment is not only a stock but also aflow phenomenon. The present micro-econometric studyanalyses the impact of important socio-economiccharacteristics on unemployment duration in West Germany.Based on a search theoretic framework unemployment durationis considered as a stochastic process whose evolution isinfluenced by economicand demographic variables likeunemployment benefits, expected wage offers, training andage. This is modeled by application of the concept of thehazard rate which denotes the conditional exit rate fromunemployment over time given elapsed unemployment duration.Contrasting more traditional models a semi-parametricapproachis chosen which reduces the danger ofmis-specification of the stochastic duration process. Thisprocedure also is particularly suitable for the analysis ofgrouped observations on unemployment duration typicallygenerated by longitudinal data sets as the German"Socio-Economic Panel" which is utilized for this study.Besides deriving a set of empirical results on unemploymentduration in West Germanymethodological issues of durationanalysis are considered with particular attention paid tothe impact of the sample design. Also, important outcomesfrom search theory and findings from other hazard rateanalysesare surveyed.