Search methods and transitions into employment and inactivity: An analysis of linked records from the Labour Force Survey

This paper sets out to evaluate the effect of search method employed (broadly defined here as formal or informal) on the probability that an individual will move out of unemployment into either employment or inactivity. We take advantage of the longitudinal element contained within the Labour Force Survey and link 794 individual records through five quarters. The sample contains all those who are unemployed in Spring 1996 and records their labour market status for the four quarters ending in Spring 1997. Given that this element of the LFS is only just beginning to be used, we attempt to evaluate its usefulness for the estimation of a discrete time‐competing risks model. We do find an effect of search method employed in the final specification and the sign on the coefficient rejects our belief that those using informal search methods may do so in order to signal their higher levels of productivity. Instead we are led to conclude that those using informal search methods may do so because of a lack of skills needed to use more formal channels.