A demand model without state dependence will not be able to predict such a long term e ect. Heterogeneity and State Dependence . University of Chicago Press, Chicago and London, 1981. Firms may judge workers productivity by their past history of unemployment. 6 Most work in this area has investigated state dependence in durations, ie whether there is duration dependence in the exit rate from unemployment.
Exceptions are the following.
Both studies find no evidence of state dependence in unemployment occurrence. S. Rosen, Chicago, Chicago Press. This argument provides also an explanation for the differential impact of industry dummies on job duration, because conformity to group norm has different relevance in industries like banking and catering. In the true case once a person experiences an event, her behaviour or opportunities change compared with an otherwise identical person who has not experienced this event. Past experience may be a good proxy for these omitted variables.