I. INTRODUCTION The last two decades have seen considerable growth in the level of unemployment in the UK. Between 1960 and 1968, the average unemployment rate was 2.6 percent, by the first half of the 1980's this had risen to 10.5 percent. Along with rising unemployment, this period also saw changes in the nature of unemployment, with unemployed individuals spending longer periods out of work. Between 1979 and 1986 the proportion of unemployed people who had been out of work for over a year rose from 20 percent to approximately 40 percent. Recent work by Layard et al. (1991) shows that almost the entire growth in unemployment over this period can be attributed to an increase in time spent unemployed rather than an increase in the inflow rate into unemployment. In this paper we examine the factors associated with long-term unemployment. In particular, we analyse the impact of unemployment benefits and reservation wages on unemployment duration, in the context of an optimal search model, making use of the procedures developed by Lancaster and Chesher (1983, 1984). Our data also enable us to examine the extent to which the government's Restart programme, introduced in 1987, succeeded in reducing unemployment
Oxford Bulletin of Economics & Statistics – Wiley
Published: Nov 1, 1995
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