The Long-Term Effects of Job Search Requirements: Evidence from the UK JSA Reform

This paper investigates long-term returns from unemployment compensation, exploiting variation from the UK JSA reform of 1996, which implied a major increase in job search requirements for eligibility and in the related administrative hurdle. Search theory predicts that such changes should raise the proportion of non-claimant nonemployed, with consequences on search effort and labor market attachment, and lower the reservation wage of the unemployed, with negative effects on post-unemployment wages. I test these ideas on longitudinal data from Social Security records (LLMDB). Using a difference in differences approach, I find that individuals who start an unemployment spell soon after JSA introduction, as opposed to six months earlier, are 2.5-3% more likely to move from unemployment into Incapacity Benefits spells, and 4-5% less likely to have positive earnings in the following year. This latter employment effect only vanishes four years after the initial unemployment shock. Also, annual earnings for the treated individuals are lower than for the non-treated. These results suggest that while tighter search requirements were successful in moving individuals off unemployment benefits, they were not successful in moving them onto long-lasting or better jobs, with fairly long lasting unintended consequences on a number of labor market outcomes.unemployment compensation, job search, post-unemployment earnings

At a time of persistent unemployment, Nobel Laureate Chris Pissarides’s search theory offers significant lessons for policy makers.

The 2010 Nobel Prize in Economics was awarded to Chris Pissarides of the LSE Centre for Economic Performance, jointly with Peter Diamond and Dale Mortensen, ‘for their analysis of markets with search frictions’. As Barbara Petrongolo explains, their research has deeply enhanced our understanding of how labour markets work and how policy-makers should respond.

Gender Segregation in Employment Contracts

This paper presents evidence on gender segregation in employment contracts in 15 EUcountries, using micro data from the ECHPS. Women are over-represented in part-time jobsin all countries considered, but while in northern Europe such allocation roughly reflectswomen¿s preferences and their need to combine work with child care, in southern Europepart-time jobs are often involuntary and provide significantly lower job satisfaction than fulltimeones. Women are also over-represented in fixed-term contracts in southern Europe, andagain this job allocation cannot be explained by preferences or productivity differentialsbetween the two genders. There is thus a largely unexplained residual in the gender joballocation, which may be consistent with some degree of discrimination in a few of the labourmarkets considered, especially in southern Europe.Gender gap, employment, taxation, public policy

Chris Pissarides, CEP's Nobel laureate

Barbara Petrongolo outlines how his analysis of markets with search frictions has enhanced our understanding of how labour markets work and how policy-makers should respond

Regional Mismatch and Unemployment: Theory and Evidence from Italy, 1977-1998

This paper describes the functioning of a two-region economy characterized by asymmetric wage-setting. Labor market tightness in one region (the leading-region) affects wages in the whole economy. In equilibrium, net labor demand shifts towards the leading region raise unemployment in the rest of the economy and leave regional wages unchanged, causing an increase in aggregate unemployment. This model has some success in explaining the evolution of regional unemployment rates in Italy during the period 1977-1998. Based on SHIW micro data on earnings and ISTAT data on unemployment rates we find strong evidence that wages in Italy only respond to labor market tightness in the North. We estimate that around one third of the increase in aggregate unemployment in Italy can be explained by regional mismatch, mainly due to an excess labor supply growth in the South.regional imbalances; wage curve; unemployment.

How Local Are Labor Markets? Evidence from a Spatial Job Search Model

This paper uses data on very small UK geographies to investigate the effective size of local labor markets. Our approach treats geographic space as continuous, as opposed to a collection of non-overlapping administrative units, thus avoiding problems of mismeasurement of local labor markets encountered in previous work. We develop a theory of job search across space that allows us to estimate a matching process with a very large number of areas. Estimates of this model show that the cost of distance is relatively high – the utility of being offered a job decays at exponential rate around 0.3 with distance (in km) to the job – so that labor markets are indeed quite 'local'. Also, workers are discouraged from applying to jobs in areas where they expect relatively strong competition from other jobseekers. The estimated model replicates fairly accurately actual commuting patterns across neighbourhoods, although it tends to underpredict the proportion of individuals who live and work in the same ward. Finally, we find that, despite the fact that labor markets are relatively 'local', local development policies are fairly ineffective in raising the local unemployment outflow, because labor markets overlap, and the associated ripple effects in applications largely dilute the impact of local stimulus across space.job search, local labor markets, location-based policies, ripple effects

The part-time pay penalty.

Women working part-time in the UK have hourly earnings that are on average 26 percent less than women working fulltime. Alan Manning and Barbara Petrongolo investigate what's behind this part-time pay penalty.

How Local Are Labour Markets? Evidence from a Spatial Job Search Model

This paper uses data on very small UK geographies to investigate the effective size of local labour markets. Our approach treats geographic space as continuous, as opposed to a collection of nonoverlapping administrative units, thus avoiding problems of mismeasurement of local labour markets encountered in previous work. We develop a theory of job search across space that allows us to estimate a matching process with a very large number of areas. Estimates of this model show that the cost of distance is relatively high - the utility of being offered a job decays at exponential rate around 0.3 with distance (in km) to the job - so that labour markets are indeed quite 'local'. Also, workers are discouraged from applying to jobs in areas where they expect relatively strong competition from other jobseekers. The estimated model replicates fairly accurately actual commuting patterns across neighbourhoods, although it tends to underpredict the proportion of individuals who live and work in the same ward. Finally, we find that, despite the fact that labour markets are relatively 'local', local development policies are fairly ineffective in raising the local unemployment outflow, because labour markets overlap, and the associated ripple effects in applications largely dilute the impact of local stimulus across space.Job search, local labour markets, location-based policies, ripple effects

Regional Imbalances and Aggregate Performance in a Leading Sector Model of the Labour Market: An analysis of Italian data 1977-1991

This paper presents a model in which wages throughout the economy depend only on the labour market conditions in some low-unemployment sector. In equilibrium, a labour demand shift towards the primary sector tends to raise the unemployment rate everywhere else in the economy and leaves wages unchanged. Overall this implies an increase in aggregate unemployment. Based on SHIW micro data for the period 1977-1991 we find that wages in Italy depend only on the tightness of the labour market in the North. We estimate that around 15% of the increase in aggregate unemployment in Italy can be explained by a shift in labour demand in favour of the North not matched by an equal shift in labour supply.

A Test Between Unemployment Theories Using Matching Data

This paper tests whether aggregate matching is consistent with unemployment being mainly due to search frictions or due to job queues. Using U.K. data and correcting for temporal aggregation bias, estimates of the random matching function are consistent with previous work in this field, but random matching is formally rejected by the data. The data instead support 'stock-flow' matching. Estimates find that around 40 per cent of newly unemployed workers match quickly - they are interpreted as being on the short-side of their skill markets. The remaining workers match slowly, their re-employment rates depending statistically on the inflow of new vacancies and not on the vacancy stock. Having failed to match with existing vacancies, these workers wait for the arrival of new job vacancies. The results have important policy implications, particularly with reference to the design of optimal unemployment insurance programs.Matching, Unemployment, Temporal aggregation