Knut Røed

Does Unemployment Compensation Affect Unemployment Duration

We use a flexible hazard rate model with unrestricted spell duration and calendar time effects to analyse a dataset including all Norwegian unemployment spells during the 1990s. The dataset provides a unique access to conditionally independent variation in unemployment compensation. We find that a marginal increase in compensation reduces the escape rate from unemployment significantly, irrespective of business cycle conditions and spell duration. The escape rate rises sharply in the months just prior to benefit exhaustion. While men are more responsive than women with respect to marginal changes in compensation, women are most responsive with respect to benefit exhaustion.

Hysteresis in Unemployment

After two decades of ratcheting unemployment in Europe, most economists agree that structural changes associated with higher equilibrium rates of unemployment have occurred. But the direction of causality is a matter of controversy: have the structural changes caused the long-lasting increases in actual unemployment? Or have the increases in actual unemployment caused the structural changes? The latter possibility is often referred to as hysteresis. During the past decade, a distinct research program has evolved around the idea that equilibrium employment tracks actual unemployment. This survey reviews the various hysteretic explanations offered in the literature and evaluates their empirical standing. Copyright 1997 by Blackwell Publishers Ltd

The Anatomy of Absenteeism

Based on comprehensive administrative register data from Norway, we examine the determinants of sickness absence behavior; in terms of employee characteristics workplace characteristics, panel doctor characteristics, and economic conditions. The analysis is based on a novel concept of a workers steady state sickness absence propensity, computed from a multivariate hazard rate model designed to predict the incidence and the duration of sickness absence for all workers. Key conclusions are i) that most of the cross-sectional variation in absenteeism is caused by genuine employee heterogeneity; ii) that the identity of a persons panel doctor has a significant impact on absence propensity; iii) that sickness absence insurance is frequently certified for reasons other than sickness; and iv) that the recovery rate rises enormously just prior to the exhaustion of sickness insurance benefits.

Unemployment Hysteresis--Macro Evidence from 16 OECD Countries

This paper investigates empirically the presence ofunemployment hysteresis in 16 OECD countries, applying aggregate quarterly unemployment rates covering the past 25 years. Alternative test procedures are discussed and employed, posing both stationarity and hysteresis as null hypotheses. The results suggest that hysteresis effects are highly significant in Australia and Canada, and to a lesser extent also significant in most European countries and in Japan. Only in the USA, the presence of unemployment hysteresis is strongly and consistently rejected.

DO BUSINESS CYCLE CONDITIONS AT THE TIME OF LABOR MARKET ENTRY AFFECT FUTURE EMPLOYMENT PROSPECTS

Labor market conditions at the time and place of potential entry into the labor market are shown to have a substantial and persistent effect on adult employment prospects. Individuals who face particularly depressed local labor markets when they graduate from secondary education, areother things equalsubject to relatively high rates of nonemployment during their whole prime-age work career. Building on a unique combination of micro and macro data from Norway, we show that these effects are robust with respect to model specification and conditioning variables, and that they are not limited to individuals with a particularly disadvantaged background.

When Minority Labor Migrants Meet the Welfare State

Life cycle employment of minority labor migrants who entered Norway in the early 1970s diverges from that of natives. Immigrant employment was nearly complete during early years but declined to 50% by the year 2000 (compared to 87% for a native comparison group). We find that immigrant employment is particularly sensitive to the business cycle and that economic downturns of the 1980s and 1990s accelerated their labor market exit. We trace part of the decline to migrants being overrepresented in shrinking industries. But we also identify welfare disincentives that contribute to poor life cycle employment performance of immigrants with many dependent family members.

Organizational Change, Absenteeism, and Welfare Dependency

Based on Norwegian register data, we set up a multivariate mixed proportional hazard model (MMPH) to analyze nurses’ pattern of work, sickness absence, nonemployment, and social insurance dependency from 1992 to 2000, and how that pattern was affected by workplace characteristics. The model is estimated by means of the nonparametric maximum-likelihood estimator (NPMLE). We find that downsizing processes involve a significant increase in the level of sickness absence among still-employed nurses. They also cause a significant increase in the probability of entering into more long-lasting health-related social insurance dependency.

Do Labour Market Programmes Speed Up the Return to Work

We evaluate the impact of labour market programmes on unemployment durations in Norway, by means of a distribution-free mixed proportional competing risks hazard rate model. We find that programme participation, once completed, improves employment prospects, but that there is often an opportunity cost in the form of a lock-in effect during participation. The average net effect of programme participation on the length of the job search period is found to be around zero. For participants with poor employment prospects, the favourable post-programme effects outweigh the negative lock-in effects.

The Sick Pay Trap

In most countries, employers are financially responsible for sick pay during an initial period of a worker’s absence spell, after which the public insurance system covers the bill. Based on an empirical evaluation of a quasi-natural experiment in Norway, where pay liability was removed for pregnancy-related absences, we show that the system of short-term pay liability creates a sick pay trap: firms are discouraged from letting long-term sick workers back into work since they then face the financial risk associated with subsequent relapses. We present evidence indicating that this disincentive effect is both statistically and economically significant.

Does unemployment cause unemployment? Micro evidence from Norway

The way that unemployment duration affects employment prospects, is investigated using Norwegian micro transition data encompassing detailed accounts of 14 807 unemployed adults. A generalized non-proportional Weibull model is estimated, with two possible exits from the unemployment pool: a job or a labour force exit. On average the probability of obtaining a job is fairly constant at the individual level, while the probability of exiting the labour force increases significantly as unemployment duration is prolonged. For some particular groups of unemployed, there is also a marked negative duration dependence in the probability of obtaining a job.