Hazard Rate Models

Abstract

The analysis of unemployment duration in this study is based on the concept of the hazard rate and of the survivor function which were introduced in chapter II.2 about search theory. In the present chapter the design of explanatory hazard rate models for individual unemployment duration is considered in detail and empirical findings are surveyed. The framework established in this chapter is then used in subsequent chapters to construct models for our empirical investigation. Firstly, in part III. 1 we focus on a “single risk” setting that only distinguishes two states “unemployment” and “not unemployment”. In chapter III.2 the framework is extended to “competing risks” models which explicitly distinguish between different post—unemployment states into which transition from unemployment can occur. In part III.3 the parameterization of the regression model is discussed. It is unlikely that all factors which influence unemployment duration can be incorporated into an empirical model. Part III.4 of the chapter therefore considers the influence of left-out variables on statistical inference. Finally, in part III.5 results from other investigations based on the hazard rate approach are reviewed.