STATISTICAL DISCRIMINATION AND DURATION DEPENDENCE IN A SEMISTRUCTURAL MODEL

Abstract

This article develops a job-search model with unobserved worker heterogeneity and learning about worker types from unemployment duration. The model features negative duration dependence that stems from unobserved heterogeneity, skill depreciation, and statistical discrimination. We estimate job-finding rates implied by our model using microlevel data from the Current Population Survey. We find that removing interview costs counterfactually, thereby eliminating statistical discrimination, substantially increases the job-finding rates of the long-term unemployed. The performance of low-skill workers at the interview stage with discriminating firms plays a key role in explaining our counterfactual result.