Structural change of the production process and unemployment duration in Germany

Based on a Cox Proportional Hazard analysis of German unemployment spells, structural change of the production process is identified as a major explanation for long-term unemployment. Other important covariates capture labor market institutions, macroeconomic stress factors, and individual characteristics. Structural change of the production process has resulted in a shift in labor demand across occupations and skills. For individuals laid off from declining parts of the economy, this implies a devaluation of their human capital. They need to acquire new skills for positions in expanding parts of the economy, or spend a longer time in unemployment searching for the few remaining jobs for which they possess adequate skills.