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Unemployment Insurance, Recall Expectations, and Unemployment Outcomes
Author(s): Lawrence F. Katz and Bruce D. Meyer
Source: The Quarterly Journal of Economics, Vol. 105, No. 4 (Nov., 1990), pp. 973-1002
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2937881
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UNEMPLOYMENT INSURANCE, RECALL
EXPECTATIONS, AND UNEMPLOYMENT OUTCOMES*
LAWRENCE F. KATZ AND BRUCE D. MEYER
This paper empirically examines the importance of explicitly accounting for the
layoff-rehire process in the analysis of unemployment outcomes in the United States.
We find that the spells of individuals' who initially expect to be recalled account for
much more of the unemployment of unemployment insurance (UI) recipients than
do spells actually ending in recall. Our results indicate that the recall and new job
escape rates from unemployment have quite different time patterns and are often
affected in opposite ways by explanatory variables. We also find that the probability
of leaving unemployment both through recalls and new job finding increases greatly
around the time that UI benefits lapse.
Over the past fifteen years many studies have empirically
analyzed the determinants of individual unemployment spell durations
in the United States.' Much of this literature has used a job
search framework in which the unemployed are viewed as permanently
displaced workers who are unattached to jobs. The possibility
of recall to a former job, a process not requiring search, has been
omitted from explicit consideration in the majority of these studies.2
An explicit treatment of the layoff-rehire process is necessary
for a proper understanding of the determinants of unemployment
durations and of the impacts of unemployment policies in the
United States for at least three reasons. First, temporary layoffs in
which workers are often rehired by their original employers are a
quantitatively quite important feature of the U. S. labor market.3
Second, expectations concerning the likelihood of recall are likely to
affect the responses of employers and unemployed workers to labor
market interventions such as reemployment bonuses and subsidies
*We thank Walter Corson for providing data and answering numerous questions
and Robert Scheinerman for research assistance. We have benefited from the
comments of Steve Albert, Joe Altonji, Larry Kenny, Gary Solon, Larry Summers,
Robert Topel, an anonymous referee, and seminar participants at Chicago, Cornell,
Florida, Harvard, MIT, the NBER, Northwestern, and the Econometric Society
Winter Meetings. We are grateful to the NSF for financial support through grants
SES-8809200 (Katz) and SES-8821721 (Meyer). Data and programs used in this
paper will be available from the ICPSR data archives, Ann Arbor, Michigan.
1. See, for example, Ehrenberg and Oaxaca [1976], Kiefer and Neumann [1979],
and Moffitt [1985].
2. Exceptions include Classen [1977] and Katz [1986].
3. In fact, Feldstein [1975] and Lilien [1980] conclude that over 70 percent of
workers laid off in U. S. manufacturing in the 1970s were subsequently rehired by
their former employers, and Katz [1986] finds that the layoff-rehire process also
appears to be widespread outside of manufacturing.
? 1990by the Presidentand Fellowsof HarvardCollegeand the MassachusettsInstitute of
Technology.
The Quarterly Journal of Economics, November 1990
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974 QUARTERLY JOURNAL OF ECONOMICS
for the training of the unemployed. Third, employer recall policies
are a primary determinant of the duration of unemployment spells
of individuals with nonnegligible recall prospects. Thus, studies
examining the unemployment spells of job losers in the United
States that fail to account directly for the layoff-rehire process may
generate quite misleading inferences concerning the determinants
of job search behavior and of unemployment spell durations.
This paper examines how an explicit consideration of the
possibility of recalls affects inferences concerning the determinants
of the duration of unemployment spells of unemployment insurance
(UI) recipients. We first document that the prospect of recall to a
previous employer appears to be relevant for the majority of UI
recipients in the United States. We then examine how recall
expectations are related to job search behavior, reemployment
earnings, and unemployment spell durations.
Our analysis is performed using a unique sample of UI recipients
from Missouri and Pennsylvania covering unemployment
spells in the 1979-1981 period. This data set combines Continuous
Wage and Benefit History (CWBH) UI administration records with
information from a follow-up survey conducted approximately one
year after individuals filed for UI benefits. These data allow us to
determine the relationship between recall expectations and unemployment
experiences for UI recipients in the two states. We
corroborate some of our key findings using an additional CWBH
data set that covers a longer time period and a greater number of
states than the Missouri-Pennsylvania sample.
We find that about 70 percent of Ul recipients expect to be
recalled and that these individuals account for more than half of the
weeks of unemployment of UI recipients. Furthermore, the spells of
individuals' who initially expect to be recalled (ex ante temporary
layoffs) account for much more unemployment than do spells
actually ending in recall (ex post temporary layoffs). This difference
arises because those initially expecting recall who are not actually
recalled tend to have extremely long unemployment spells.
In the second part of our empirical work, we use a competing
risks model, in which new job acceptances and recalls are treated as
alternative routes of leaving unemployment, to study the impact of
recall expectations, worker and job characteristics, and UI variables
on the duration of unemployment spells. Our findings indicate that
the recall and new job exit probabilities have quite different time
patterns and often are affected in opposite ways by explanatory
variables. In particular, the recall rate is quite high at short
durations and then declines substantially, while the new job finding
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 975
rate appears to increase with duration up to the point of UI benefits
exhaustion. We also find that the probability of leaving unemployment
both through recalls and new job finding increases greatly
around the time that UI benefits lapse. These results suggest that
the duration of UI benefits may have a strong influence on firm
recall policies and worker new job finding behavior. Finally, we find
that workers who expect to be recalled spend less time searching for
jobs and have a lower new job finding rate than other UI recipients.
The remainder of the paper is organized as follows. Section I
describes in detail our Missouri-Pennsylvania data set. Section II
presents evidence on the fraction of the unemployment of UI
recipients accounted for by alternative measures of temporary
layoffs using several data sources and presents descriptive information
on the relation between recall expectations and unemployment
outcomes. Section III discusses the implications of models that
explicitly take into account the possibility of recalls for the empirical
analysis of unemployment spell durations. Section IV presents
empirical evidence on the distribution of unemployment spell
durations of UI recipients in Missouri. Section V uses formal
econometric duration models to empirically examine the impact of
recall expectations, demographic characteristics, and UI variables
on unemployment spell durations. Section VI concludes by discussing
the implications of our findings for the analysis and design of
unemployment policies in the United States.
I. DATA DESCRIPTION:THE MISSOURI-PENNSYLVANIASAMPLE
Our primary data set for this study consists of a sample of UI
recipients from Missouri and Pennsylvania who filed for UI benefits
from October 1979 to March 1980. The data set combines records
collected by the Unemployment Insurance Service under the Continuous
Wage and Benefit History (CWBH) system with information
from special supplemental telephone interviews conducted in
late 1980 and early 1981. The CWBH data include information from
a survey administered when individuals filed for UI as well as UI
administrative records of benefit receipt. The follow-up telephone
interviews provide information on the starting date of and the
weekly wages on the first post-UI job, and allow us to determine
whether the job was with the pre-UI employer.4
4. Corson and Nicholson [1983] describe the construction and present an
interesting empirical analysis of the original data set. Corson and Hilton [1982]
provide detailed documentation of the version of the data set we used to make our
sample.
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976 QUARTERLY JOURNAL OF ECONOMICS
This data set allows us to overcome many of the data limitations
that confront studies that use either CWBH data or survey
data in isolation. Studies using only CWBH data (e.g., Moffitt
[1985]) are limited to the study of compensated weeks of unemployment
and typically are unable to distinguish spells ending through
recall from those ending through the finding of a new job. Studies
using micro survey data sets such as the Panel Study of Income
Dynamics (e.g., Katz [1986]) tend to have poor information on the
UI system parameters facing unemployed individuals and may have
significant measurement error because of the retrospective nature
of many of the questions.5 The Missouri-Pennsylvania data set
allows us to distinguish compensated from uncompensated weeks of
unemployment and to determine how unemployment spells end. It
also provides information on the initial recall expectations of UI
recipients and accurate administrative information on the level and
length of available benefits. The major disadvantage of this data set
is that it contains the unemployment spells of individuals from only
two states over a short time period. In particular, since the sample
contains only individuals who filed for UI benefits in the fourth and
first quarters (October 1979 to March 1980), it is likely to overrepresent
seasonal temporary layoffs. We present some evidence on the
extent to which our conclusions generalize to other states and time
periods in Section II.
The original Missouri-Pennsylvania telephone interview data
set contains 2,035 observations. Exclusions for missing demographic
data and incomplete or inconsistent information on unemployment
spells leaves a sample of 1,499 observations. Variable
definitions and basic descriptive statistics for this sample are given
in Table I.
We focus most of our analysis on the initial spell of unemployment
in the benefit year for each individual in the sample since the
data set provides much better information on first spells then on
total unemployment in the benefit year. We have developed several
different measures of unemployment spell durations. IUSR measures
the unemployment spell starting from the UI claim date that
is available from administrative records, and FSPELL measures the
spell from the respondent's self-reported spell start date. These two
5. The availability of both administrative records and survey responses in the
Missouri-Pennsylvania data set allows us to assess the validity of survey respondents'
retrospective reports of unemployment experiences. A brief analysis of the
accuracy of the survey responses is contained in the Appendix.
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TABLE I
DESCRIPTIVESTATISTICSFOR MISSOURI-PENNSYLVANIAUI RECIPIENTS DATA SET
(UNEMPLOYMENTSPELL START DATES IN 1979-1980)
Mean (S.D.)
Variable Description Missouri Penn. Total
IUSR Weeks from UI claim date until reem- 16.64 12.91 14.92
ployment or until interview date if (15.62) (14.47) (15.15)
spell is censored
FSPELL Weeks from end of pre-UI job until re- 19.35 16.21 17.90
employment or until interview date if (16.66) (16.54) (16.67)
spell is censored
PAYSPELL Weeks from UI first payment date until 15.27
reemployment or until interview date (14.81)
if spell is censored (Missouri only)
PD1 Potential benefits duration in weeks at 22.92 34.88 28.44
claim date (4.52) (4.49) (7.47)
UI benefit Augmented weekly benefit amount 88.80 124.76 105.38
(17.64) (42.38) (36.28)
Pre-UI wage Usual weekly earnings on pre-UI job 258.35 256.13 257.33
(133.12) (122.97) (128.50)
EXPREC = 1 if expect recall at time of claim 0.74 0.76 0.75
DEFREC = 1 if have definite recall date 0.12 0.25 0.18
Recall = 1 if spell ended in recall 0.51 0.64 0.57
New job = 1 if spell ended in taking a new job 0.40 0.28 0.34
Censored = 1 if spell is censored at interview 0.09 0.07 0.08
date
Age age in years 36.43 36.80 36.60
(13.19) (13.59) (13.37)
Female = 1 if female 0.33 0.25 0.30
Married = 1 if married 0.69 0.63 0.66
Education Years of schooling 11.37 11.56 11.46
(2.11) (1.76) (1.95)
Spwk = 1 if spouse works 0.45 0.37 0.41
PA = 1 if Pennsylvania 0.00 1.00 0.46
Industry dummies
Mining = 1 if mining 0.01 0.03 0.02
Construct = 1 if construction 0.30 0.28 0.29
Durables = 1 if durable goods manufacturing 0.21 0.24 0.22
Nondurables = 1 if nondurable goods manufactur- 0.16 0.17 0.16
ing
Transport = 1 if transportation, communications 0.06 0.04 0.05
or utilities
Trade = 1 if wholesale or retail trade 0.12 0.13 0.12
Admin = 1 if public administration 0.03 0.03 0.03
Service = 1 if services 0.11 0.08 0.10
Occupation dummies
Prof = 1 if professional, technical, or mana- 0.06 0.05 0.05
gerial
Clerical = 1 if clerical or sales 0.10 0.09 0.10
Supervisor = 1 if supervisor 0.06 0.04 0.05
Craft = 1 if craft and related occupations 0.34 0.38 0.36
Operator = 1 if operator 0.23 0.29 0.26
Laborer = 1 if laborer 0.21 0.15 0.18
Sample size 808 691 1499
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978 QUARTERLY JOURNAL OF ECONOMICS
measures can be computed for both Pennsylvania and Missouri.
PAYSPELL is an alternative measure that more fully utilizes
administrative records on the actual number of weeks of benefits
received, but it can be computed only for individuals from Missouri.
All three unemployment spell measures lead to similar conclusions
concerning the fraction of unemployment accounted for by alternative
measures of temporary layoffs. The PAYSPELL measure
provides more accurate information for analyzing the distribution
of unemployment spell durations.
The descriptive statistics in Table I indicate that the prospect
of recall was relevant for a large majority of the UI recipients in the
sample. When asked soon after their unemployment spells began,
75 percent expected to be recalled, and 18 percent had a definite
recall date from their employer.7 Thus, the majority of the sample
could initially be classified as being on "indefinite" layoff with some
expectation of recall but without a known recall date. Fifty-seven
percent of the individuals in the sample had initial unemployment
spells ending in recall. The mean unemployment spell duration is
about 15 weeks when measured from the claim date and about 18
weeks when measured from the end of the pre-UI job.8
UI recipients in Missouri and Pennsylvania largely consisted of
blue-collar occupations and workers previously employed in construction
and manufacturing. The importance of recalls varied
substantially across industries. Sixty-six percent of the workers laid
off from construction, mining, and manufacturing had spells ending
in recall as opposed to 37 percent of the workers from transportation,
trade, services, and administration.
6. PAYSPELL is defined as weeks from UI first payment date until reemployment
(or until the interview date if the first unemployment spell is still in progress at
the interview date). For individuals who had a single compensated unemployment
spell in the benefit year and who gained reemployment before benefits were
exhausted, PAYSPELL can be computed from CWBH administrative records and
equals the weeks of benefits received in the benefit year. We were forced to use
respondent retrospective information on weeks of benefits received in the initial spell
for individuals with multiple compensated unemployment spells in the benefit year.
In this case, PAYSPELL equals the survey respondent's self-reported weeks of
benefits received during his or her initial unemployment spell. For individuals who
exhausted their benefits during their initial unemployment spell, PAYSPELL is
given by weeks from the UI first payment date (from CWBH records) until the
self-reported reemployment date (or until the interview date if the spell is censored).
7. The recall expectations information is from a CWBH questionnaire that is
administered when an individual files for UI. The questionnaire clearly indicates
that the information is confidential and only for statistical and research purposes.
The exact question used to determine whether an individual expected to be recalled
is "do you expect to be called back to work by any of your past employers?" A
response of yes to this question triggers the further question "did a past employer
give you a definite recall date?"
8. These means understate the mean duration of completed spells since only
incomplete spell durations are available for spells censored at the interview date.
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 979
The rules concerning the level and duration of UI benefits were
much more generous in Pennsylvania than in Missouri during the
period of our sample.9 In particular, the maximum weekly benefit
available was $105 in Missouri and $170 in Pennsylvania in 1980.
Pre-UI earnings were similar in the two states leading to a much
higher replacement rate in Pennsylvania. Regular UI benefits
in Pennsylvania had a uniform duration of 30 weeks, while Missouri
had a maximum potential duration of 26 weeks with variation
in the potential duration that depended on base period and high
quarter earnings. The Missouri sample provides substantial variation
in the potential length of benefits, while the Pennsylvania
sample provides almost none. Extended benefits were triggered in
February 1980 in Pennsylvania and in May 1980 in Missouri. The
extensions raised the potential length of benefits to 39 weeks in
Pennsylvania and increased the potential length by 50 percent in
Missouri.
II. RECALLEXPECTATIONSAND UNEMPLOYMENTOUTCOMES:
SOME EVIDENCE
In this section we analyze the fraction of the unemployment of
UI recipients in our Missouri-Pennsylvania sample that can be
accounted for by temporary layoffs. We further examine the
fraction of compensated unemployment attributable to different
measures of temporary layoffs for a larger and more representative
sample of UI recipients. Finally, we analyze the relations among
recall expectations, job search behavior, and the reemployment
earnings of UI recipients.
We introduce a distinction between ex ante and ex post layoffs.
Ex ante layoffs are those that begin with a person expecting to be
recalled, while ex post layoffs are those ending in recall. Previous
examinations of the fraction of total unemployment time accounted
for by the layoff-recall process have used the ex post concept or a
hybrid approach. The ex post concept gives the proportion of
unemployment from spells involving no job change [Feldstein,
1975; Clark and Summers, 1979]. The hybrid approach looks at
in-progress temporary layoffs and is the fraction of the unemployed
at a point in time who are "on layoff awaiting recall" by a previous
employer [Murphy and Topel, 1987]. These measures are likely to
underestimate the total amount of unemployment affected by recall
9. See Corson and Nicholson [1983] for further information on the Missouri and
Pennsylvania UI systems during this period.
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980 QUARTERLY JOURNAL OF ECONOMICS
prospects. The ex post measure does not include the unemployment
of those who initially waited for recall but who do not eventually get
recalled. The hybrid approach only partially includes people who
expect to be recalled, since recall expectations are likely to fade as
an unemployment spell continues.
The ex post approach does not take into account the fact that
some workers who expect to be recalled at the time of layoff are not
recalled or find other jobs before being recalled. Workers expecting
recall whose expectations are not met, may have quite long unemployment
spells, since they are unlikely to search intensively for a
new job as long as they regard the probability of recall to a valuable
old job as high. If these workers receive UI benefits, they may be
willing to wait as long as the benefits last before searching for
another job. Other employers may be unwilling to incur the initial
fixed costs of hiring and training workers with reasonable prospects
of recall to a more attractive job. These factors suggest an ex ante
temporary layoff concept to measure the amount of unemployment
affected by the layoff-recall process. The recall expectations information
in our Missouri-Pennsylvania data set allows us to compare
our ex ante layoff concept with the usual ex post temporary layoff
approach.
Table II presents the distribution of first unemployment spells
and weeks of first spell unemployment by spell outcome, recall
expectations, and definite recall status for our entire sample using
the IUSR unemployment concept. Since it is unlikely that many of
the long censored spells ended in recall, it appears reasonable to
conclude that about 57 percent of the unemployment spells and 32
percent of the weeks of unemployment of UI recipients in our two
states are accounted for by ex post temporary layoffs.10The typical
spell ending in recall was substantially shorter than those ending in
the finding of a new job. Less than 10 percent of unemployment is
accounted for by spells in which individuals had a definite recall
date. On the other hand, almost 64 percent of unemployment is
accounted for by ex ante temporary layoffs.
The lower half of Table II provides more detailed information
on the relation between recall expectations and unemployment
outcomes. Seventy-two percent of those who expected to be recalled
and 13 percent of those who did not expect to be recalled had spells
10. The share of unemployment accounted for by temporary layoffs is likely to
be overstated in this sample relative to a random sample of unemployment spells
over the calendar year since most of the spells started in the peak period for
temporary seasonal layoffs (December, January, and February). We provide evidence
on the importance of this bias below.
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 981
TABLE II
RECALL EXPECTATIONS AND UNEMPLOYMENT SPELL OUTCOMES FOR FIRST SPELLS
OF UNEMPLOYMENT USING THE IUSR UNEMPLOYMENT MEASURE
(ENTIRE SAMPLE-MISSOURI AND PENNSYLVANIA-1,499 OBSERVATIONS)
Percentage of Mean
Percentage total weeks of duration
Group of spells unemployment in weeks
Spell outcome:
Recall 57.2 32.4 8.4
New job 34.4 39.1 17.0
Censored 8.4 28.5 50.6
Recall expectations:
Expect recall 75.2 63.8 12.7
Don't expect recall 24.8 36.2 21.8
Definite recall:
Definite recall date 18.1 9.7 8.0
No definite recall date 81.9 90.3 16.5
Recall expectations and spell outcome:
Expect recall (n = 1,127):
Recall 71.7 46.4 8.2
New job 22.2 29.0 6.5
Censored 6.1 24.6 50.8
Don't expect recall (n = 372):
Recall 13.4 7.6 12.3
New job 71.2 57.0 17.4
Censored 15.3 35.4 50.4
Note. The length of the unemployment spell up to the interview date is utilized as the unemployment spell
duration for censored spells in the percentage of total weeks of unemployment and mean duration in weeks
calculations.
actually ending in recall. An interesting finding from this table is
that, although the vast majority of those who expected to be
recalled were recalled, more than 50 percent of the total unemployment
of those who expected to be recalled is accounted for by the
minority who were not recalled. UI recipients who ex ante expected
to be recalled and ex post were not recalled tend to have quite long
unemployment spells. While this group accounts for only 21 percent
of the entire sample, it accounts for approximately 34 percent of
first spell unemployment.
One plausible reason why those who expect be recalled but are
not tend to have long unemployment spells is that they may
rationally decide to wait for recall and not search very intensively
for a new job.1"(They may also have a difficult time gaining new jobs
11. An alternative possibility is that some of the workers who claimed to expect
to be recalled and who do not actually get recalled may simply be "malingerers" who
claim to expect recall for the purpose of avoiding UI job search requirements.
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982 QUARTERLY JOURNAL OF ECONOMICS
TABLE III
SEARCH BEHAVIOROF UI RECIPIENTS (ENTIRE SAMPLE-MISSOURI AND
PENNSYLVANIA-1,499 OBSERVATIONS)
Mean search Unconditional
hours per week mean search
Percent of those who hours per
Group who searched searched week
All 59 12.1 7.1
Spell outcome:
Recall 41 9.8 4.0
New job 85 14.3 12.1
Censored 78 11.3 8.8
Recall expectations:
Expect recall 52 10.9 5.7
Don't expect recall 83 14.5 12.0
Definite recall:
Definite recall date 33 11.7 3.8
No definitie recall date 65 12.2 7.9
Note. The percent who searched calculations are based on the yes-no answers of workers to the following
question: "I'd like to ask you about the period of time after that job [pre-UI job] ended. Did you look for work at
that time?" Workers who answered yes to this question were later asked "And about how many hours per week on
the average would you say you spent looking for work?"
since employers will be reluctant to hire those likely to return to
their old jobs.) Table III provides some information on the search
behavior of the UI recipients in our sample. Fifty-nine percent of
the UI recipients claimed to have looked for work at the time they
were laid off. The average searcher spent 12 hours a week looking for
work. Those who expected to be recalled were substantially less
likely to search than those who did not expect to be recalled, and
they searched many fewer hours on average as well. This result is
consistent with the finding of Barron and Mellow [1979] that those
who classify themselves as being on "temporary layoff" in the
Current Population Survey spend less time searching than do other
individuals who classify themselves as unemployed. Low search
intensity may play a role in the low rate of new job finding of those
who expect to be recalled.
Workers with ajob to which they are likely to be recalled typically are not required to
register with the state employment service and do not have as strict job search
requirements as other UI recipients. Although information on the CWBH questionnaire
is clearly not used for the purposes of determining job search requirements, we
cannot completely rule out the possibility that this explanation is of quantitative
significance.
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 983
The Contribution of Temporary Layoffs to Total Compensated
Unemployment
We next examine the share of total weeks of compensated
unemployment accounted for by alternative measures of temporary
layoffs. The importance of temporary layoffs in compensated
unemployment is of particular interest for UI program purposes.
Our primary data set provides information on total weeks of
compensated unemployment (weeks of UI benefit receipt) only for
the Missouri sample.
The distribution of total compensated unemployment in the
benefit year by outcome of the first spell and first spell recall
expectations for our Missouri sample is presented in the first row of
Table IV. Individuals whose first spell ended in recall account for
almost 41 percent of the total weeks of compensated unemployment.
This percentage is substantially larger than their share of
total weeks of first spell unemployment. This difference arises
because those recalled are more likely to have multiple spells of UI
receipt in a year and because weeks of unemployment after UI
exhaustion are not included.
Since the Missouri-Pennsylvania sample covers only two states
over a short period in which seasonal temporary layoffs are likely to
be overrepresented, we provide information in Table IV on the
importance of recall expectations and actual recalls for UI recipients
in a larger number of states over a longer time period using the
CWBH administrative data described in Meyer [1989]. This data
set provides consistent information on recall expectations, actual
recalls, and total compensated unemployment over the benefit year
for four states (Missouri, Pennsylvania, Idaho, and Washington) for
the period July 1979 to December 1982. Information on a fifth state
(New Mexico) is available for a slightly shorter period. Workers
expecting to be recalled account for over 55 percent of compensated
unemployment in three of the five states, and ex ante temporary
layoffs are responsible for much more compensated unemployment
than ex post temporary layoffs in all five states. A comparison of the
last two rows of Table IV shows that, while the time period covered
by our Missouri-Pennsylvania sample does somewhat overstate the
importance of temporary layoffs, the basic conclusions that individuals
expecting to be recalled account for the substantial majority of
insured unemployment spells and that ex ante temporary layoffs
are quantitatively more important than ex post temporary layoffs
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984 QUARTERLYJOURNALOFECONOMICS
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 985
remain when one examines the entire available sample period for
the four states with consistent data.
Furthermore, our findings are quite similar to those of Robertson
[1988] for Canada. Robertson finds that 44 percent of total UI
weeks in Canada in 1984 were accounted for by ex post temporary
layoffs. Thus, we conclude that a substantial proportion of insured
unemployment in both United States and Canada appears to be
related to the layoff-recall process.
Reemployment Earnings
An important element in the evaluation of the success of a UI
program is the effect of UI on the wages of reemployed workers.
Table V provides information on the post-UI job earnings relative
to pre-UI job earnings of those individuals in the MissouriTABLE
V
POST-UI JOB EARNINGS RELATIVETO PRE-UI JOB EARNINGS FOR THOSE
REEMPLOYEDBY THE INTERVIEWDATE (EARNINGSCHANGEMEASURE= LOG
(POST-UI EARNINGS/PRE-UI EARNINGS)MISSOURI-PENNSYLVANIASAMPLE)
Change in log Change in log
weekly earnings hourly earnings
Sample
Group size Mean Median Mean Median
Entire sample by spell outcome (n = 1,331):
Recall 838 -0.059 -0.046 -0.014 -0.023
(0.011) (0.009)
New job 493 -0.156 -0.103 -0.128 -0.089
(0.023) (0.019)
New job finders (n = 493):
Recall expectations:
Expect recall 240 -0.201 -0.141 -0.151 -0.104
(0.034) (0.028)
Don't expect recall 253 -0.113 -0.081 -0.106 -0.081
(0.031) (0.027)
Whether exhausted:
Exhausted benefits 67 -0.520 -0.425 -0.301 -0.246
(0.078) (0.058)
Didn't exhaust benefits 426 -0.098 -0.086 -0.101 -0.085
(0.023) (0.020)
Note. The numbers in parentheses are the standard errors of the means. Earnings are deflated by average
hourly earnings of U. S. private nonagricultural workers (series AHEEAP from DRI). The base period for the
deflator is the second quarter of 1979. Pre-UI job earnings are deflated from the end date of the pre-UI job.
Post-UI job earnings are deflated from the interview date.
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986 QUARTERLY JOURNAL OF ECONOMICS
Pennsylvania sample reemployed by the interview date.12 Those
with unemployment spells ending in recall appear to go back to
their old jobs since their post-UI hourly earnings are quite similar to
their pre-UI hourly earnings. On the other hand, the usual weekly
hours of those rehired by their previous employers do decline by
about 4.5 percent on average. The reduced hours of those recalled
may be due to the cyclical downturn that gained force by the middle
of 1980.
Individuals with spells ending through the finding of new jobs
typically experienced substantial earnings declines. In particular,
the hourly earnings of those who expected to be recalled but were
not fell by 15 percent on average, while new job finders who did not
expect to be recalled experienced 11 percent earnings losses on
average. Table V also illustrates that individuals who exhausted
their benefits experienced the largest earnings declines by a substantial
margin. Their hourly earnings declined by 30 percent on
average, and their weekly earnings declined even further. The large
losses of exhaustees suggest that reservation wages are likely to fall
substantially and that the new job finding rate is likely to increase
substantially as benefits run out. An alternative explanation for the
low relative reemployment earnings of those with long spells is
heterogeneity in reemployment prospects. Workers with low job
offer arrival rates are likely to have both low reservation wages and
low escape rates from unemployment for many plausible wage offer
distributions.
III. THEORETICAL BACKGROUND
The duration of unemployment is typically analyzed using a
standard job search model in which unemployed workers generate
job offers by costly search. This approach leads to a single risk
model of unemployment spell durations in which unemployment
spells can only end through the finding of an acceptable new job.
This formulation is less appropriate when analyzing the unemployment
durations of workers on layoff with some possibility of recall.
The prospect of recall affects the probability of leaving unemploy-
12. Pre-UI earnings are from information provided by respondents at the time
that they made their UI claims. Post-UI earnings are from the follow-up survey. The
choice of deflator (Average Hourly Earnings Versus CPI) affects conclusions about
the magnitude of earnings changes. The earnings losses are substantially larger when
the CPI is used as the deflator. On the other hand, the choice of deflator does not
substantively affect any conclusions concerning relative earnings changes of any of
the group compared.
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 987
ment directly through the rate of actual recalls and indirectly by
affecting worker search behavior. Katz [1986] finds in a standard
job search model extended to include an exogenous recall probability
that better recall prospects are likely to reduce the new job
finding rate by raising the reservation wage and reducing the
likelihood of search.13This suggests that workers who expect to be
recalled may have extremely long unemployment spells if their
expectations are not fulfilled.
Katz [1985] also analyzes a model in which unemployed
workers learn about their recall prospects in a Bayesian manner. He
shows that the longer a worker is unemployed, all else held constant,
the lower will be his or her subjective probability of recall. This
result leads to a decreasing reservation wage and possibly increasing
search intensity. Consequently, the new job finding rate for those
who initially expect to be recalled should rise with unemployment
duration (display positive duration dependence) under this scenario.
UI benefits of limited potential duration can also generate a
smoothly increasing new job hazard up to the point of benefits
exhaustion since the value of remaining unemployed decreases as
the number of remaining weeks of benefits decreases [Mortensen,
1977]. If individuals can locate jobs and arrange not to begin work
until their benefits run out, this effect may generate a discontinuous
increase in the escape rate near the point of benefits exhaustion.
Mortensen [1987] incorporates both limited duration UI benefits
and the possibility of recalls in a joint wealth-maximizing model
of job separations. Layoffs occur in response to reductions in
match-specific productivity. The reservation wage decreases over
the course of an unemployment spell as a worker approaches benefit
exhaustion. This induces an increasing new job finding rate and an
increasing recall rate as well. Mortensen shows that for realistic
parameter values most of the decline in the reservation wage should
occur in the last week or two before exhaustion. The discrete change
in the flow value of being unemployed when benefits are exhausted
yields the prediction that many firms may recall laid-off workers
around the benefit exhaustion point and that the new job finding
rate should increase around exhaustion.
The statistical model of unemployment spell durations generated
by job search models extended to allow for recalls is a
competing risks model in which unemployment spells can end
either through recall or through the finding of an acceptable new
13. Burdett and Mortensen [1978] and Pissarides [1982] also analyze job search
models that incorporate the possibility of recalls.
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988 QUARTERLY JOURNAL OF ECONOMICS
0.14
0.12-
0.10
2 0.08 _
N
coJ
-~0.06
0.04-
0.02-
0 .0 0 I I I I I I I II I I I I I l I l- I I I I I I I l1I l - I I I I I I I I I I I I I
1 4 7 10 13 16 19 22 25 28 31 34 37 40
weeks unemployed
FIGUREI
Total Hazard
job.14 The predictions of standard job search models for how
variables affect the escape rate from unemployment really refer to
the new job finding rate and these predictions need not hold for the
overall escape rate from unemployment (the sum of the recall and
new job finding rates). Information on whether spells ended through
recall or the finding of a new job allows an econometrician to
estimate a competing risks model. The competing risks specification
has the advantage of permitting one to identify the distinct
impact of variables on the recall rate and the new job finding rates.
IV. THE DISTRIBUTIONOF UNEMPLOYMENTSPELL DURATIONS
The pattern of initial unemployment spell durations in our
Missouri sample of UI recipients using the PAYSPELL unemployment
spell concept is illustrated in Figures I and II. We focus our
duration analysis on the Missouri sample since more information to
construct accurate spell durations is available for this sample than
14. See Kalbfleisch and Prentice [1980] for a detailed discussion of competing
risksmodels.
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 989
0.09
0.08 _
0.07-
0.06P2
0.05-
N
C_0.04 -
0.03-
0.02-
0.01 X
0.00
1 4 7 10 13 16 19 22 25 28 31 34 37 40
weeks unemployed
_ recall hazard , new job hazard
FIGUREII
Recall and New Job Hazards
for Pennsylvania. The overall empirical hazard for a given week is
the fraction of spells ongoing at the start of that week which end
during the week. The recall and new job empirical hazards are
analogously defined as the fraction of spells ongoing at the start of
the week that end during the week through recall and through the
finding of a new job, respectively. The total hazard basically trends
downward except for a rise at 12 and 16 weeks and a valley at
around 32 weeks.'5
The overall hazard masks the quite distinct patterns in the
recall and new job hazards.'6 The recall hazard drops sharply over
time except for spikes at 12 and 16 weeks and becomes quite low
after about 25 weeks. The new job hazard starts out quite low and
increases a bit on average until about 25 weeks. More precisely, the
new job escape rate grouped into eight-week intervals rises from
15. A pronounced even-odd effect, where the hazard tends to be higher in even
weeks, is also evident in Figures I and II. A possible explanation for this anomaly is
that the cards used to claim benefits in Missouri are mailed two at a time to potential
recipients.
16. These basic differences in the recall and new job finding hazards are quite
similar to those found for UI recipients in a national sample of household heads from
the PSID analyzed by Katz [1986].
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990 QUARTERLY JOURNAL OF ECONOMICS
0.15
0.10
N
Cd
0.05
0.00
25 20 15 10 5 0 -5 -10 -15 -20
weeks of Ul left
FIGUREIII
Total Time Until Exhaustion Hazard
14.8 percent for the first eight weeks of a spell to 19.1 and 20.8
percent, respectively, for the 9-to-16 and 17-to-24 week intervals.
Direct evidence on exhaustion effects is somewhat masked in
Figures I and II because of the fair amount of variation in potential
durations contained in the Missouri sample.
Figures III and IV provide a direct look at possible effects of
finite length UI benefits on spell durations. The figures present time
until exhaustion empirical hazards analogous to the usual KaplanMeier
estimators. The time axis is time until benefits lapse rather
than time since a spell began. There is a large spike in the hazard at
the week of benefits exhaustion.17 This spike is apparent for both
the new job and recall hazards.18The new job finding rate remains
relatively high after exhaustion, while the recall rate becomes
minuscule after exhaustion. This suggests that workers may stop
17. The spike in the hazard function at the week of benefits exhaustion is not
primarily a phenomenon related to hiring halls and seasonal fluctuations in the
construction industry. Only four of the twenty-six individuals with spells ending in
the UI exhaustion week were construction workers.
18. We have taken at face value the reasons people gave for ending receipt of UI.
If a person responded that he stopped receiving UI because he found a job, his spell
length was set equal to the number of weeks of UI received. This rule may have
overstated the rise in the hazard near exhaustion if the responses to this question
were in error.
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 991
0.09
0.08 _
0.07-
0.06P1
0.05-
co
N
CW0.04-
0.03 -
0.02-
0.01 n
25 20 15 10 5 0 -5 -10 -15 -20
weeks of Ul left
recall hazard . new job hazard
FIGUREIV
Time Until Exhaustion Recall and New Job Hazards
waiting for recall and start taking new jobs as their benefits run out.
In fact, when we look only at workers who indicated when their
spells began that they expected to be recalled, the new job finding
rate is extremely low early in spells, and there is a prolonged sharp
increase in the new job escape rate from four weeks before
exhaustion through three weeks after exhaustion.
The recall spike around exhaustion in Figure IV provides some
support for the Mortensen [1987] joint wealth-maximizing model of
the layoff-recall process in which the flow value of being unemployed
drops discretely as benefits run out. The exhaustion spikes
are consistent with the findings on a PSID sample of Katz [1986]
and on a CWBH sample by Moffitt [1985] and Meyer [1990]. Katz
also finds that spikes in the hazard near typical exhaustion weeks
(26 and 39 weeks) are not apparent for non-UI recipients. The
absence of such a pattern for non-UI recipients strongly suggests
that the exhaustion spikes for UI recipients are related to the finite
length of UI benefits.
V. FORMALDURATIONMODELSFORTHE MISSOURISAMPLE
OF UI RECIPIENTS
In this section we analyze the impact of recall expectations,
individual and pre-UI job characteristics, and UI system variables
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992 QUARTERLY JOURNAL OF ECONOMICS
on the total, recall, and new job exit rates from unemployment for
the Missouri sample of UI recipients.
Model Specification
The exit rates from unemployment are analyzed using formal
hazard model techniques. We use a proportional hazards model
estimator that allows for time-varying explanatory variables and
that nonparametrically estimates the change in the hazard over
time.19 The estimates are the parameters of a continuous time
hazard model and thus retain a clear interpretation. Nonparametrically
estimating the change in the hazard over time eliminates the
need to impose a potentially restrictive functional form that has no
theoretical justification.
Formally, we parameterize the overall hazard rate from unemployment
for individual i at time t, Xi(t), using the proportional
hazards form. Let Ti be the length of individual i's unemployment
spell. Then
Ai(t)=limPprob [t + h > Ti t- t]
h ?0+ h
= X0(t)exp {zI(t)'f3}
where
X0(t)is the baseline hazard at time t, which is unknown,
zi(t) is a vector of time dependent explanatory variables for
individual i, and
f is a vector of parameters, which is unknown.
The probability of a spell lasting until t + 1 given that is has lasted
until t is easily written as a function of the hazard:
(1) P[Ti 2 t + 1 Ti>T t] = exp [-t+ 1Xi(u) du].
Assuming that zi(t) is constant between t and t + 1, equation (1) can
be rewritten as
(2) P [Ti 2 t + 1 Ti 2 t] = exp [-exp {zI(t)fl + ly(t)}]
19. This semiparametric approach is analyzed in detail in Meyer [1986].
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 993
where
(3) y(t) = in{ X(u) du}.
The log-likelihood for a sample of N individuals can be written
as a function of terms such as (2):
N
(4) L(yj) = Zi In [1 - exp exp [y(ki) + zi(ki) 0]}]
k,-1
- exp [-y(t) + zi(t)3]j
t=1
where
ki = the time a spell ends or is censored, and
di = 1 if the spell ends before the survey date and 0 if the spell
is censored.
This approach assumes that censoring does not provide any information
about Ti beyond that available in the covariates.
We utilize an analogous methodology to estimate the recall and
new job hazards within a competing risks model framework. The
recall and new job hazards are specified analogously to the total
hazard above. In the estimation of the recall hazard, spells ending in
the finding of a new job are treated as censored (di = 0) at the date
of new job finding. Spells ending in recall are analogously treated as
censored at the recall date in the estimation of the new job hazard.
The effects of UI on the hazard rates are measured using
functions of the benefits level and the time until benefits lapse. The
level of weekly UI benefits is included as a time-varying covariate
whose impact is allowed to vary depending on whether the individual
is still receiving benefits or has exhausted benefits. Also
included are time until benefit exhaustion dummy variables for five
intervals covering both weeks before and after benefits have
expired. These variables are designated UI 6-10 through UI < -1.
Each of these time-varying exhaustion dummies takes on the value
of one in its designated interval and takes on the value of 0 in all
other periods. For example, UI 6-10 takes on the value one when the
individual is six to ten weeks until exhaustion; UI 0 takes on the
value of one in the week of benefits exhaustion; and UI < -1 takes
on the value of one when the individual is one week or more after
exhaustion. Those 11 or more weeks before exhaustion are the
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994 QUARTERLYJOURNALOFECONOMICS
comparison group, the group corresponding to the omitted dummy
variable.
Results for the Missouri UI Recipient Sample
Semiparametric hazard model estimates of the total, recall, and
new job hazards for the Missouri sample using the PAYSPELL
unemployment spell variable are presented in Table VJ.20Initial
recall expectations have a strong effect on the hazards, raising the
recall and reducing the new job hazards substantially. Using the
estimates in Table VI, those expecting recall have a recall hazard
that is almost ten times as high as those who do not expect to be
recalled. Furthermore, those expecting recall have a new job hazard
that is almost 40 percent lower. The large negative coefficient on
expect recall in the new job hazard indicates that workers who
expect to be recalled and are not, tend to have much longer
unemployment spells than observationally equivalent workers who
realized they were permanently displaced at the time of layoff. This
result is quite consistent with the findings of Katz [1986] and
Gibbons and Katz [1989] that workers permanently displaced by
layoffs (slack work or position or shift eliminated) have longer
unemployment spells than those displaced in plant closings. The
longer spells of those permanently displaced by layoffs are likely to
reflect both the depressing effect of recall expectations on job search
and a "lemons" effect in which outside employers draw negative
inferences about the "quality" of workers who are laid off and not
recalled when their original employers have discretion with respect
to whom to layoff.
The expect recall and definite recall variables also have strong
effects on the total hazard in the estimates presented in Table VI.
Those who have a definite recall date (and necessarily expect recall)
have a total hazard that is over twice as high as those not expecting
recall. A definite recall date also further increases the recall hazard
by a factor of 1.7, but has no significant effect on the new job
hazard.2"
20. The sample size falls to 756 in the hazard model estimates, since 52
individuals in the original Missouri sample have missing pre-UI job tenure data.
21. The industry dummy variable coefficients are fairly small and statistically
insignificant when expect recall and definite recall date are included in the hazard
model estimates. When the expect recall and definite recall date dummies are
excluded, the industry dummy variables have much larger and statistically significant
effects, with construction, durable goods, and nondurable goods industries
having significantly higher recall rates and significantly lower new job finding rates
than other industries.
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 995
TABLE VI
SEMIPARAMETRICHAZARD MODEL ESTIMATES FOR MISSOURI UI RECIPIENTSa
Total Recall New job
Variable hazard hazard hazard
Expect recall 0.423 2.236 -0.500
(0.099) (0.272) (0.135)
Definite recall 0.445 0.509 0.218
(0.138) (0.148) (0.282)
UI benefit ($100s), pre-exhaustb 0.381 1.640 -1.115
(0.322) (0.438) (0.447)
UI benefit ($100s), post-exhaust 0.496 -0.150
(0.838) (1.136)
Pre-UI net weekly wage ($100s) -0.026 -0.075 0.048
(0.045) (0.059) (0.061)
Age -0.043 -0.039 -0.054
(0.024) (0.031) (0.040)
Age squared/100 0.046 0.041 0.053
(0.029) (0.039) (0.050)
Pre-UI job tenure (years) 0.0139 0.0260 -0.0304
(0.0073) (0.0088) (0.0191)
Education 0.032 -0.049 0.128
(0.018) (0.030) (0.029)
Black -0.404 -0.392 -0.459
(0.193) (0.247) (0.288)
Female -0.161 -0.027 -0.416
(0.118) (0.145) (0.182)
Time until exhaustion dummies:C
UI 0 0.928 0.835 0.789
(0.235) (0.371) (0.329)
UI 1 0.393 0.385 0.410
(0.300) (0.479) (0.405)
UI 2-5 -0.090 -0.045 -0.164
(0.194) (0.273) (0.291)
UI 6-10 -0.167 -0.166 -0.182
(0.146) (0.208) (0.220)
UI -1 -0.636 -0.470 -1.423
(0.732) (0.416) (0.976)
Log likelihood value -2,416.2 -1,388.4 -1,275.6
a. The unemployment spell duration measure utilized is PAYSPELL. Other controls included in each of the
specifications are number of dependents, spouse works and married dummies, a dummy indicating whether the
spell started before February 1, 1980, six industry dummies, weeks from end of pre-UI job until claim date, weeks
from claim date until first payment date. In the total and new job hazard models individual baseline hazard
parameters are estimated for weeks 1 to 52; spells longer than 52 weeks are censored at 52. In the recall hazard
parameters are estimated for the first 30 weeks, after which spells are censored. The number of observations is
756. The numbers in parentheses are asymptotic standard errors.
b. The UI benefit level variable is constrained to have the same effect before and after exhaustion in the
recall hazard model. There are too few individuals recalled after exhaustion to estimate an additional coefficient.
c. The time until exhaustion dummy variables are defined in the text.
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996 QUARTERLYJOURNALOFECONOMICS
Increases in pre-UI job tenure, a possible measure of firmspecific
human capital or job match quality, are associated with a
significantly increased recall hazard and decreased new job hazard.
Older workers appear to have longer spells because of both lower
recall and new job-finding rates after controlling for tenure. The
total hazard estimates mask many large differences between the
effects of the covariates on the recall and new job-finding hazards.
The large and significant increases in the recall and new job
hazards apparent in Figure IV at the week of benefits exhaustion
are strongly confirmed in the more sophisticated hazard model
estimates. Higher UI benefits are associated with higher recall rates
and lower new job-finding rates. The UI benefit coefficients in the
new job hazard appear reasonable; higher benefits greatly depress
the new job-finding rate, and this effect disappears after benefits
are exhausted. The positive and significant coefficient in the recall
hazard is a puzzle. High UI benefits may be linked to the short-term
temporary layoff sector of the Missouri economy. The effect of UI
and the pre-UI wage on the total hazard are of opposite sign from
the findings of most studies, although they are not statistically
significant.
We further examine the time pattern of the baseline hazards
from these models now that we have controlled for observable
differences across individuals. After including explanatory variables,
the time pattern of the hazards is captured by the y(t)s, the
baseline hazard parameters defined in equation (3).22 These parameters
confirm the patterns seen in Figures I and II. A total
hazard that falls with unemployment duration masks the combination
of an upward sloping new job hazard and a downward sloping
recall hazard. A test of these patterns that confirms the visual
impression was performed using GLS regressions of the baseline
hazard parameters on the length of spell weighted by the inverse
sampling variance of the estimated baseline hazard parameters. As
a summary of the data, we used the specification y(t) = a + b ln
(t) + E. This specification roughly corresponds to a Weibull
baseline hazard. These regressions yield a positive coefficient on In
(t) of 0.31 with a standard errorof 0.12 for the new job hazard (using
the baseline hazard parameters up to week 42), and a negative
coefficient on In (t) of -0.12 with a standard error of 0.15 for the
22. The estimated baseline hazard parameters are not reported but are
available from the authors.
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 997
recall hazard (using the baseline hazard parameters up to week 26).
These results show the value of the competing risks specification
that allows the disentangling of the two effects which produce the
total hazard. Furthermore, the finding that the new job escape rate
rises with spell duration, even after including variables which
attempt to control for the remaining potential duration of UI
benefits, suggests that falling reservation wages from declining
assets and changing recall expectations may play an important role
in the reemployment process of laid-off workers.23
A potential problem with the estimates in Table VI is that it is
likely that some individual attributes which affect the hazard rate
are omitted from the list of covariates. If unobserved heterogeneity
is present, but not allowed for in the estimation, the coefficient
estimates will be biased. Estimates which allow for individual
specific omitted attributes under the assumption that a gamma
distribution is a reasonable approximation to the distribution of
heterogeneity in the population are very similar to those in Table
VI.
Specifications were also tried that included several additional
covariates: a dummy variable set equal to one if the individual
engaged in job search at the time of job loss, the time-varying state
unemployment rate, and five occupation dummy variables. None of
these additions noticeably changed the key findings. The state
unemployment rate and occupation dummies were always insignificant.
The behavior of the search variable again illustrates the
usefulness of the competing risks approach. In the total hazard the
search variable comes in negative and highly significant, implying
that those who search initially are reemployed less quickly. However,
this may arise because initial search acts as a further proxy for
the likelihood of recall. Those who strongly expect to be recalled
may not search and may also be recalled quickly. The recall and new
job hazard estimates provide some support for this interpretation.
23. Although uncontrolled heterogeneity biases estimates of the overall hazard
toward spurious findings of negative duration dependence, a bias in the opposite
direction is possible for an individual escape route hazard in a competing risks
framework. If uncontrolled factors that raise the recall hazard also lower the new job
hazard, then one can in theory find spurious positive duration dependence in the new
job hazard. Han and Hausman [1986] have developed an estimator to handle
correlated, unobserved heterogeneity in a competing risks model. They implement
their estimator on the PSID layoff unemployment spell data set developed by Katz
[1986] and find essentially zero correlation among the unobserved heterogeneity
factors in the new job and recall hazards.
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998 QUARTERLY JOURNAL OF ECONOMICS
The search variable has a large negative value in the recall hazard,
but is small and insignificant in the new job hazard.
Overall, the lack of variation in the UI parameters within
Missouri suggests the need to look at a data set covering more states
and a longer time period to determine more accurately the impact of
the length and level of UI benefits on spell durations. Our recent
work [Katz and Meyer, 1990; Meyer, 1989, 1990] on larger CWBH
data sets with greater variation in UI system parameters than
available in this Missouri sample strongly confirms previous research
that has documented that both the level and length of UI
benefits have substantial impacts on the duration of unemployment
spells of UI recipients. The results with the Misouri sample do
indicate that the recall process plays a major part in determining
the duration of unemployment spells of UI recipients and the
increase in unemployment escape rate around when benefits lapse.
Finally, several authors, including Hamermesh [1977], have
suggested a subtle reason why studies that use weeks compensated
by UI as the dependent variable might yield biased benefit coefficients.
They suggest that higher benefits might induce people to
claim UI more promptly, so that a larger fraction of an unemployment
spell of a given length would be spent receiving UI. This effect
might lead to the finding that higher benefits cause longer compensated
spells even when there is no effect on the total length of
unemployment. This effect is of potential importance in our
Missouri sample where the mean number of weeks from loss of job
until UI claim is 3.6 weeks and the standard deviation is 4.3 weeks.
This hypothesis was tested by estimating hazard models where the
dependent variable is the time from loss of job to the UI claim date.
We used a set of control variables like that used for the unemployment
spell specifications. The Hamermesh hypothesis would require
a large positive coefficient on the benefit level, but the
estimated coefficient was close to zero, negative, and insignificant.
This result provides some support for the reliability of studies that
use weeks compensated as the dependent variable.24
VI. CONCLUSION
In this paper we have introduced a distinction between ex ante
and ex post temporary layoffs. Ex ante temporary layoffs are layoffs
24. Solon [1981] found a similar result in an examination of CWBH data for
three states during the 1978-1979 period.
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UNEMPLOYMENT INSURANCE AND RECALL EXPECTATIONS 999
where an individual initially expects to be recalled, while ex post
temporary layoffs are those ending in recall. Ex ante temporary
layoffs appear to account for a majority of spells and weeks of
unemployment of UI recipients in the United States, while ex post
temporary layoffs account for a large, but appreciably smaller,
fraction of unemployment. We emphasize the ex ante concept
because the expectation of recall seems to affect the behavior of the
unemployed. Those expecting recall spend less time searching for
new jobs than do other UI recipients and tend to have extremely
long unemployment spells if they are not actually rehired by their
former employer.
We calculate that ex ante temporary layoffs accounted for over
57 percent of compensated unemployment for a sample of five
states covering the 1979-1982 period. This figure suggests that at
least 50 percent of UI benefits were paid out to those on ex ante
layoffs during this period. Because most firms are quite imperfectly
experience rated [Topel, 1983; Meyer, 1989], a large component of
UI payments in the United States is likely to represent an implicit
subsidy to ex ante temporary layoffs.
Our results combined with the findings of Murphy and Topel
[1987] also suggest that ex ante temporary layoffs account for a
substantial fraction of total (compensated and uncompensated)
unemployment for males in the United States. In particular,
Murphy and Topel find, using Current Population Survey (CPS)
data, that for the 1967-1985 period the typical share of unemployed
males who were on "layoff awaiting recall" was 34 percent, and the
typical share of "job losers not currently expecting recall" was 49
percent. Since our findings indicate that many individuals with long
spells may initially have expected and waited for recall and since
very few of the long-duration unemployed in the CPS classify
themselves as currently awaiting recall, we conclude that those who
initially expected recall and end up with long unemployment spells
eventually stop classifying themselves as awaiting recall. In this
case, many of the long-term unemployed who are listed as job losers
not currently expecting recall in the CPS may actually represent ex
ante layoff spells. Thus, 34 percent may be a significant underestimate
of the fraction of male unemployment accounted for by the
layoff-rehire process over the 1967-1985 period.
We have also used a competing risks approach to divide the exit
rate from unemployment into a recall rate and a new job finding
rate. This approach shows that the recall and new job escape rates
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1000 QUARTERLYJOURNALOFECONOMICS
from unemployment have quite different time patterns and are
affected in opposite ways by key explanatory variables. Those
expecting recall have a recall hazard that is almost ten times higher
and a new job finding rate that is almost 40 percent lower than other
UI recipients. We find that the hazard rate of finding a new job rises
as a spell progresses as suggested by several search models. This
result holds after accounting for observed individual characteristics
and the limited duration of UL. Furthermore, we find that the
probability of leaving unemployment, both through recalls and new
job finding, increases greatly around the time that benefits are
exhausted.
Our findings concerning the quantitative importance of ex ante
temporary layoff spells in the United States and the behavioral
effects of recall expectations have implications for the design and
evaluation of unemployment policies. First, since the importance of
recall expectations and the value of waiting for recall varies
substantially across sectors, the persistence of unemployment may
depend greatly on the sectoral distribution of adverse shocks.
Second, unemployed workers are likely to have little interest in
relocation or retraining programs when they expect to be recalled.
In fact, a recent news story discussing difficulties with a subsidized
job retraining program reported that "As long as workers think
there is hope for a recall and a [high] wage, the retraining experts
here say, they are unlikely to join the program" [Kilborn, 1990, p.
A10].
Third, the impact of reemployment bonus programs in which
large lump sums are offered to UI recipients who end their spells
quickly is likely to depend greatly on how such programs treat
temporary layoffs. Such bonuses have recently been offered on an
experimental basis in four states in attempts to determine whether
they provide a cost-effective way of shortening unemployment
spells.25 If a bonus program pays bonuses to people returning to
their last employer, they may prove counterproductive even if they
shorten the typical insured unemployment spell. This potential for
perverse impacts arises since imperfect experience rating means
that the availability of such bonuses may create strong incentives
for increased use of temporary layoffs.
25. See Woodbury and Spiegelman [1987] and Meyer [1988] for evaluations of a
noteworthy reemployment bonus experiment in Illinois.
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UNEMPLOYMENT INSURANCE & RECALL EXPECTATIONS 1001
APPENDIX: ACCURACYOF SURVEYRESPONSES
The combination of administrative records and survey data
available in the Missouri-Pennsylvania data set provides an opportunity
to explore the accuracy of the retrospective reports on weekly
benefit levels, weeks of benefit receipt, and unemployment spell
durations. The data set allows us to compare accurate administrative
records with the survey responses of the UI recipients. We find
that the sample members provide quite accurate information on the
level of UI benefits they received and quite poor information on the
weeks of benefits received and the dates of the beginning and
ending of their unemployment spells. A little over two thirds (67.5
percent) of the 1,408 individuals in our sample that provided
information on the level of weekly benefits reported exactly (to the
dollar) the benefit level indicated by administrative records. Eightyfive
percent of the sample were within $10 of the true amount. The
mean self-report was slightly downward biased ($102 reported
versus $105 actual), and the variance of the reporting error divided
by the variance of the true value was a fairly small 0.26.
On the other hand, very few individuals in the sample reported
weeks of benefit receipt the same as indicated by their CWBH
records. Only 15 percent of the 561 individuals in Missouri with a
single spell of unemployment in the benefit year reported weeks of
benefit receipt equivalent to the number provided by administrative
records; 35 percent have deviations from CWBH records of over
four weeks. The mean absolute difference between weeks reported
by respondents and CWBH records is 4.5 weeks. Many inconsistencies
in reported dates are apparent in the sample.
HARVARDUNIVERSITYANDNATIONALBUREAU OFECONOMICRESEARCH
DEPARTMENTOFECONOMICSANDCENTER FORURBAN AFFAIRSANDPUBLICPOLICY,
NORTHWESTERNUNIVERSITY,ANDNATIONALBUREAUOFECONOMICRESEARCH
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