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Recent research demonstrates that, the greater the number of previous spells of unemployment and the longer their duration, the more likely is the event that an individual will be unemployed at a point in time. Two explanations have been advanced to interpret this finding. The first is rooted in economic theory; the second is based solely on statistical considerations. Under the first explanation, past unemployment (including previous time spent in a current unemployment spell) alters preferences, prices or constraints that determine, in part, future unemployment. For example, unemployment may lead to a loss of work experience, which will alter future prospects of employability. As another example, if workers are heterogeneous in unobserved components of ability, firms may use unemployment records in their hiring decisions if the knowledge that a worker has been unemployed is useful in sorting out the worker's …