Re-Employment Probabilities over the Business Cycle

Using a Cox proportional hazard model that allows for a flexible time dependence that can incorporate both seasonal and business cycle effects, we analyze the determinants of re-employment probabilities of young workers from 1978-1989. We find considerable changes in the chances of young workers finding jobs over the business cycle, however, the characteristics of those starting jobless spells do not vary much over time. Therefore, government programs that target specific demographic groups may change individuals' positions within the queue of job seekers but will probably have a more limited impact on the overall re-employment probability. Living in an area with high local unemployment reduces re-employment chances as does being in a long spell of non-employment. However, when we allow for an interaction between the length of time of a jobless spell and the local unemployment rate we find the interaction term is positive. In other words, while workers appear to be scarred by a long spell of unemployment, the damage seems to be reduced if they are unemployed in an area with high overall unemployment.