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The Ins and Outs of Cyclical Unemployment

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  • Gary Solon
  • Ryan Michaels
  • Michael W. L. Elsby

Abstract

A dominant trend in recent modeling of labor market fluctuations is to treat unemployment inflows as acyclical. This trend has been encouraged by recent influential papers that stress the role of longer unemployment spells, rather than more unemployment spells, in accounting for recessionary unemployment. After reviewing an empirical literature going back several decades, we apply a convenient log change decomposition to Current Population Survey data to characterize rising unemployment in each postwar recession. We conclude that a complete understanding of cyclical unemployment requires an explanation of countercyclical inflow rates, especially for job losers (layoffs), as well as procyclical outflow rates. (JEL E24, E32)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.84
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 1 (2009)
Issue (Month): 1 (January)
Pages: 84-110

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Handle: RePEc:aea:aejmac:v:1:y:2009:i:1:p:84-110

Note: DOI: 10.1257/mac.1.1.84
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  1. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-59, November.
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  4. Yashiv, Eran, 2006. "U.S. Labor Market Dynamics Revisited," IZA Discussion Papers 2455, Institute for the Study of Labor (IZA).
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  7. Julio J. Rotemberg, 2008. "Cyclical Wages in a Search-and-Bargaining Model with Large Firms," NBER Chapters, in: NBER International Seminar on Macroeconomics 2006, pages 65-114 National Bureau of Economic Research, Inc.
  8. Katharine G. Abraham & Robert Shimer, 2001. "Changes in Unemployment Duration and Labor Force Attachment," NBER Working Papers 8513, National Bureau of Economic Research, Inc.
  9. Robert E. Hall, 2005. "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market," NBER Working Papers 11183, National Bureau of Economic Research, Inc.
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  18. Stephen T. Marston, 1976. "Employment Instability and High Unemployment Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(1), pages 169-210.
  19. George A. Akerlof & Andrew K. Rose & Janet L. Yellen, 1988. "Job Switching and Job Satisfaction in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 495-594.
  20. Shigeru Fujita & Garey Ramey, 2006. "The cyclicality of job loss and hiring," Working Papers 06-17, Federal Reserve Bank of Philadelphia.
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  23. Eran Yashiv, 2007. "U.S. labor market dynamics revisited," LSE Research Online Documents on Economics 19665, London School of Economics and Political Science, LSE Library.
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