Unemployment persistence: How important are non-cognitive skills?

• Published in: Journal of behavioral and experimental economics Vol. 69; pp. 29 - 37
• Main Authors: Cuesta, Maite Blázquez, Budría, Santiago
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.08.2017
• Subjects: Dynamic random effects model; Non-cognitive skills; Unemployment persistence; Non-cognitive skills; Unemployment persistence; J64; C33; Dynamic random effects model
• ISSN: 2214-8043; 2214-8051
• DOI: 10.1016/j.socec.2017.05.006

•We estimate the effects of non-cognitive skills on unemployment propensity.•Results are based on a dynamic random effects model for panel data.•Most personality traits are significantly related to unemployment transitions.•Public policies should give importance to the role of non-cognitive skills. Using the 2000–2013 waves of the German SOEP, this paper shows that non-cognitive skills have a predictive power on unemployment transitions. The econometric approach is based on a dynamic random effects probit model that takes account of the unobserved individual heterogeneity and the state dependence that surrounds unemployment transitions. The estimation results show that the risk of unemployment depends positively on Agreeableness and External LOC, and negatively on Conscientiousness and Positive Reciprocity. These findings apply to men and women alike. Moreover, we find that the extent of unemployment state dependence also depends on specific traits, namely Openness, Positive reciprocity and External LOC. These results suggest that public policies aimed at preventing unemployment should give more importance to the moderating role of non-cognitive skills.