Jobfinding and wages when longrun unemployment is really long : the case of Spain

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This paper uses the "Encuesta de Condiciones de Vida Y Trabajoll (ECVT)·· a survey of the labor force activity of over 61,000 persons in Spain in 1985 when unemployment exceeded 20%--to examine the effect of unemployrnent insurance (UI) and family status on longrun joblessness. It finds that (1)duratían of joblessness 1s 50me 30% longer for those eligible for UI benefits than for those ineligible for UI; (2) the longterm unemployed are disproportionately secondary workers for whom the family serves as a form of welfare; (3) hazard rates linking the chances of jobfinding to duration of unemployment in the 1981-85 period of massive joblessness did not decline with duration; (4) the length of unemployment spells reduces wages moderately but has huge effect on the probability that re-employed workers take secondary sector jobs; (5) the UI eligible earn more and are more likely to gain regular full-time jobs than those ineligible for UI, congruent with the additional months of Job search associated with UI. The estimated effects of duratían on the hazard and on earnings are consistent with the implications of labor supply and search analysis but not with the view that long unemployment spells create a class of unemployables. Our results imply a sizeable reduction in longterm unemployment with economic recovery.
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