Local Underemployment and the Discouraged Worker Effect

The effect of poor local labour market opportunities on occupational achievement is an important aspect of the spatial mismatch hypothesis. Much of the research has concentrated on the direct link between geographical access to jobs and employment outcomes. In contrast, little attention has been given to the discouraging effect of poor chances on job search activities. The discouraged worker effect is defined as the decision to refrain from job search as a result of poor chances on the labour market. Discouragement effects can arise from a lack of individual qualifications, from discrimination in the labour market or from a high local level of underemployment. The empirical findings of this paper, based on the Netherlands Labour Force Surveys 1994-97, show that discouragement can enter the job search process both at the stage of deciding to enter the labour force and at the stage of deciding to engage actively in a job search. Gender differentials in discouragement are revealed in the process of self-selection into the labour force. Poor labour market chances lead to less activity in both off-the-job and on-the-job search, indicating a role of discouragement in the spatial mismatch. Individual qualifications and ascribed characteristics turn out to be more decisive than the local level of underemployment.