Unemployment Dynamics and Duratiqn Dependence

One of the major issues in the analysis of unemployment durations concerns the distinction between duration dependence of the exit rate out of unemployment and unobserved heterogeneity. Empirical studies rely heavily on functional form restrictions, which may be hazardous. We present a method for the nonparametric estimation of both phenomena. This method is designed to be applicable to aggregate time-series data on outflows from different duration classes. The model and estimation method explicitly take into account that individual exit rates are affected by the business cycle and by seasonal and cohort effects. The method is applied to US gross data on unemployment durations. It turns out that, except for white males, duration dependence is dominated by unobserved heter ogeneity.