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Unemployment Benefits, Labor Market Transitions, and Spurious Flows: A Multinational Logit Model with Errors in Classification

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  • James M. Poterba
  • Lawrence H. Summers

Abstract

This paper develops an algorithm for analyzing discrete events, such as labor market transitions, when some of these transitions are spurious because of measurement errors. Our algorithm extends the standard multinomial logit model, although our basic approach could be used with other stochastic models as well. We apply this algorithm to study the effect of unemployment insurance (UI) on transitions from unemployment to employment and out of the labor force. Our results suggest that VI lengthens unemployment spells by reducing both transition rates, and show that correcting for measurement error strengthens the apparent effect of VI on spell durations.

Suggested Citation

  • James M. Poterba & Lawrence H. Summers, 1993. "Unemployment Benefits, Labor Market Transitions, and Spurious Flows: A Multinational Logit Model with Errors in Classification," NBER Working Papers 4434, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4434
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    References listed on IDEAS

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    1. Flinn, Christopher J & Heckman, James J, 1983. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 28-42, January.
    2. Kim B. Clark & Lawrence H. Summers, 1979. "Labor Market Dynamics and Unemployemnt: A Reconsideration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(1), pages 13-72.
    3. John M. Barron & Wesley Mellow, 1981. "Changes in Labor Force Status among the Unemployed," Journal of Human Resources, University of Wisconsin Press, vol. 16(3), pages 427-441.
    4. John Bound & Charles Brown & Greg J. Duncan & Willard L. Rodgers, 1989. "Measurement Error In Cross-Sectional and Longitudinal Labor Market Surveys: Results From Two Validation Studies," NBER Working Papers 2884, National Bureau of Economic Research, Inc.
    5. Feldstein, Martin & Poterba, James, 1984. "Unemployment insurance and reservation wages," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 141-167.
    6. Bound, John & Krueger, Alan B, 1991. "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 1-24, January.
    7. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
    8. Duncan, Greg J & Hill, Daniel H, 1985. "An Investigation of the Extent and Consequences of Measurement Error in Labor-Economic Survey Data," Journal of Labor Economics, University of Chicago Press, vol. 3(4), pages 508-532, October.
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    Citations

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    Cited by:

    1. Sattinger, Michael, 1995. "General Equilibrium Effects of Unemployment Compensation with Labor Force Participation," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 623-652, October.
    2. Monastiriotis, Vassilis, 2000. "Inter- And Intra-Regional Wage Inequalities In The Uk: An Examination Of The Sources Of Uk Wage Inequalities And Their Evolution," ERSA conference papers ersa00p228, European Regional Science Association.
    3. Mark C. Foley, 1997. "Labor Market Dynamics in Russia," Working Papers 780, Economic Growth Center, Yale University.
    4. Foley, Mark C., 1997. "Labor Market Dynamics in Russia," Center Discussion Papers 28534, Yale University, Economic Growth Center.

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    More about this item

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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