Unemployment Duration: Competing and Defective Risks

This paper examines the determinants of unemployment duration in a competing risks framework with two destination states: inactivity and employment. The innovation is the recognition of defective risks. A polynomial hazard function is used to differentiate between two possible sources of infinite durations. The first is produced by a random process of unlucky draws, the second by workers rejecting a destination state. The evidence favors the mover-stayer model over the search model. Refinement of the former approach, using a more flexible baseline hazard function, produces a robust and more convincing explanation for positive and zero transition rates out of unemployment.