In and out of unemployment - labour market dynamics and the role of testosterone

Biological processes have provided new insights into diverging labour market trajectories. In this paper, we use population variation in testosterone levels to explain transition probabilities into and out of unemployment. We follow individual employment histories for 1,771 initially employed and 109 initially unemployed British men from the UK Household Longitudinal Study (“Understanding Society”) between 2009 and 2015. To account for unobserved heterogeneity, we apply dynamic random effect models. We find that individuals with high testosterone levels are more likely to become unemployed, but they are also more likely to exit unemployment. Based on previous studies and descriptive evidence, we argue that these effects are likely driven by personality traits and occupational sorting of men with high testosterone levels. Our findings suggest that latent biological processes can affect job search behaviour and labour market outcomes, without necessarily relating to illness and disability.