Andreas I. Mueller, Johannes Spinnewijn, Giorgio Topa, 29 January 2021

Longer spells of unemployment are associated with worse employment prospects, but there has been no consensus in the literature on what drives the decline in employment prospects. This column uses data on elicited beliefs of unemployed job seekers to uncover the forces driving long-term unemployment. It shows that 85% of the decline in job-finding rates is due to intrinsic differences across job-finding ‘types’, rather than a deterioration of skills during unemployment. Improving job seekers’ information about employment prospects may help reduce costly long-term unemployment.

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