Heterogeneity in unemployment dynamics: (Un)observed drivers of the longitudinal accumulation of risks

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We know those in unemployment are at increased risk of being unemployed again, but is this a causal relationship between past and future risks? This paper, based on large-scale data from four European countries, answer to this question disentangling the effect of past unemployment from the effect of other factors which may also be at play: those who become unemployed may tend also to have other underlying issues which put them at risk.

The paper compares data from Denmark, the UK, France and Italy. The first two of these are described as ‘social-democratic’ and ‘liberal’ institutional settings respectively, where ‘scarring’ from unemployment is usually less, while the latter two are described as ‘conservative’ and ‘Mediterranean’ settings where the problem seems to be more pronounced.

Using European Union Statistics on Income and Living Conditions (EU-SILC) data from between 2004 and 2015, the researchers were able to follow a total of almost 450,000 individuals aged 16-64 over several years. They mapped each individual’s chances of being unemployed at a particular point in time against the unemployment status in the year before.

They found that individual’s chances of being unemployed were higher for those unemployed in the previous year (aka unemployment persistence) as compared to those employed, with a net causal effect of past risks on subsequent ones. They also found that unemployment persistence was much greater in France and Italy than in the UK and Denmark.

In addition, unemployment persistence was also higher among individuals reporting a history of past unemployment, plausibly related to personal characteristics out of researcher’s control.
The researchers conclude that these risk factors, past exposure and personal issues can be cumulative, placing those who are already vulnerable at greatest risk of both experiencing and remaining trapped for longer periods into unemployment.

Policymakers might wish to mitigate these effects through targeted interventions which could include job creation schemes and also in-work training for those workers who have previously been unemployed, the paper says.