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Heterogeneity and Unemployment Dynamics

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  • Hie Joo Ahn
  • James D. Hamilton

Abstract

Many previous articles have studied the contribution of inflows and outflows to the cyclical variation in unemployment, but ignored the critical role of unobserved heterogeneity across workers. This article develops new estimates of unemployment inflows and outflows that allow for unobserved heterogeneity as well as direct effects of unemployment duration on unemployment-exit probabilities. With this approach, we can measure the contribution of different shocks to the short-run, medium-run, and long-run variance of unemployment as well as to specific historical episodes. We conclude that changes in the composition of new inflows into unemployment are the most important factor in economic recessions.

Suggested Citation

  • Hie Joo Ahn & James D. Hamilton, 2020. "Heterogeneity and Unemployment Dynamics," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(3), pages 554-569, July.
    • Handle: RePEc:taf:jnlbes:v:38:y:2020:i:3:p:554-569
    DOI: 10.1080/07350015.2018.1530116
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    Citations

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    Cited by:

    1. Holmberg, Johan, 2021. "Earnings and Labor Market Dynamics: Indirect Inference Based on Swedish Register Data," Umeå Economic Studies 984, Umeå University, Department of Economics.
    2. Hie Joo Ahn & Bart Hobijn & Ayşegül Şahin, 2023. "The Dual U.S. Labor Market Uncovered," NBER Working Papers 31241, National Bureau of Economic Research, Inc.
    3. Carlos Carrillo‐Tudela & Ludo Visschers, 2023. "Unemployment and Endogenous Reallocation Over the Business Cycle," Econometrica, Econometric Society, vol. 91(3), pages 1119-1153, May.
    4. Hie Joo Ahn, 2023. "The role of observed and unobserved heterogeneity in the duration of unemployment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(1), pages 3-23, January.
    5. Richard Grice & Victor Hernandez Martinez & Kaixin Liu, 2023. "Estimating Duration Dependence on Re-employment Wages When Reservation Wages Are Binding," Working Papers 23-21, Federal Reserve Bank of Cleveland.
    6. Chodorow-Reich, Gabriel & Coglianese, John, 2021. "Projecting unemployment durations: A factor-flows simulation approach with application to the COVID-19 recession," Journal of Public Economics, Elsevier, vol. 197(C).
    7. Hie Joo Ahn & James Hamilton, 2022. "Measuring Labor-Force Participation and the Incidence and Duration of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 1-32, April.
    8. Ahn, Hie Joo, 2023. "Duration structure of unemployment hazards and the trend unemployment rate," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    9. Mueller, Andreas I. & Spinnewijn, Johannes, 2023. "The Nature of Long-Term Unemployment: Predictability, Heterogeneity and Selection," IZA Discussion Papers 15955, Institute of Labor Economics (IZA).
    10. Zuchuat, Jeremy & Lalive, Rafael & Osikominu, Aderonke & Pesaresi, Lorenzo & Zweimüller, Josef, 2023. "Duration Dependence in Finding a Job: Applications, Interviews, and Job Offers," IZA Discussion Papers 16602, Institute of Labor Economics (IZA).
    11. Christopher J. Waller, 2022. "Responding to High Inflation, with Some Thoughts on a Soft Landing: a speech at the Institute for Monetary and Financial Stability (IMFS) Distinguished Lecture, Goethe University Frankfurt, Germany, M," Speech 94280, Board of Governors of the Federal Reserve System (U.S.).
    12. Hie Joo Ahn & James Hamilton, 2022. "Measuring Labor-Force Participation and the Incidence and Duration of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 1-32, April.
    13. Ioannis Kospentaris, 2021. "Unobserved Heterogeneity and Skill Loss in a Structural Model of Duration Dependence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 280-303, January.
    14. Thorleifsson, Oskar, 2021. "Unemployment Dynamics in the Nordics : Is there Heterogeneity in the Relative Importance of Ins and Outs?," Warwick-Monash Economics Student Papers 22, Warwick Monash Economics Student Papers.
    15. Josefine Quast & Maik H. Wolters, 2022. "Reliable Real-Time Output Gap Estimates Based on a Modified Hamilton Filter," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 40(1), pages 152-168, January.
    16. Zamanzadeh, Akbar & Chan, Marc K. & Ehsani, Mohammad Ali & Ganjali, Mojtaba, 2020. "Unemployment duration, Fiscal and monetary policies, and the output gap: How do the quantile relationships look like?," Economic Modelling, Elsevier, vol. 91(C), pages 613-632.
    17. Holmberg, Johan, 2021. "Earnings and Employment Dynamics: Capturing Cyclicality using Mixed Frequency Data," Umeå Economic Studies 991, Umeå University, Department of Economics.

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