Duration dependence of job-finding rates in Japan

This chapter examines the negative duration dependence of the job-finding probability in Japan by using officially collected data on individuals from the Labour Force Survey for the period 2003 to 2012. Because the survey has limited information on unemployment duration, a survival analysis is difficult to apply. We try to resolve this problem by adopting the bivariate probit estimation. We use information on the labor market status of the previous year to construct a proxy variable for the long-term unemployment experience. This variable is used to estimate the job-finding rate. A long-term unemployment equation is simultaneously estimated to deal with the problem of unobserved heterogeneity. After controlling for unobserved individual heterogeneity of workers by using a bivariate probit specification, we find that long-term unemployment has a negative impact on the job-finding probability for both men and women. This confirms the fact that the job-finding probability has a negative duration dependence on unemployment in the Japanese labor market. On average, unemployment for a year or more reduces the job-finding probability by about 0.075 (roughly by half).