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Unemployment Dynamics, Duration and Equilibrium: Evidence from Britain

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  • Burgess, Simon
  • Turon, Hélène

Abstract

This Paper challenges the consensus on the nature of unemployment dynamics in Britain. We show that the argument that changes in unemployment arise mostly from changes in the duration of unemployment (rather than in the event of becoming unemployed) is flawed. In fact, while shocks to the outflow do have a part to play up to the late 1970s, the huge changes in unemployment over the last two decades have been mostly driven by inflow shocks. Our model also provides a new explanation of aggregate unemployment persistence based on externalities at a market level rather than individual-level persistence.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2490.

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Date of creation: Jun 2000
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Handle: RePEc:cpr:ceprdp:2490

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Related research

Keywords: Non-Linear Dynamics; Persistence; Unemployment Duration; Unemployment Dynamics; Unemployment Flows;

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References

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  1. Stephen Machin & Alan Manning, 1998. "The Causes and Consequences of Long-Term Unemployment in Europe," CEP Discussion Papers dp0400, Centre for Economic Performance, LSE.
  2. Abbring, Jaap H & van den Berg, Gerard J & van Ours, Jan C, 1997. "Business Cycles and Compositional Variation in US Unemployment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1702, C.E.P.R. Discussion Papers.
  3. Burda, Michael C & Wyplosz, Charles, 1993. "Gross Worker and Job Flows in Europe," CEPR Discussion Papers, C.E.P.R. Discussion Papers 868, C.E.P.R. Discussion Papers.
  4. Marek Dabrowski & Stanislaw Gomulka & Jacek Rostowski, 2001. "Whence reform? A critique of the stiglitz perspective," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 4(4), pages 291-324.
  5. Michael R. Darby & John Haltiwanger & Mark Plant, 1984. "Unemployment-Rate Dynamics and Persistent Unemployment Under RAtional Expectations," UCLA Economics Working Papers, UCLA Department of Economics 339, UCLA Department of Economics.
  6. Brian Bell & Stephen Nickell & Glenda Quintini, 2000. "Wage equations, wage curves and all that," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20165, London School of Economics and Political Science, LSE Library.
  7. Mortensen, Dale T., 1994. "The cyclical behavior of job and worker flows," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 18(6), pages 1121-1142, November.
  8. Abbring, J.H. & Berg, G. van den & Ours, J.C. van, 2002. "The anatomy of unemployment dynamics," Open Access publications from Tilburg University urn:nbn:nl:ui:12-91479, Tilburg University.
  9. Price, Simon, 1985. "The Determinants of Equilibrium Unemployment in Britain: A Comment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 95(377), pages 189-95, March.
  10. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  11. Donald Robertson & James Symons, 2000. "Factor Residuals in SUR Regressions: Estimating Panels Allowing for Cross Sectional Correlation," CEP Discussion Papers dp0473, Centre for Economic Performance, LSE.
  12. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186 National Bureau of Economic Research, Inc.
  13. Stephen Nickell & Luca Nunziata, 2000. "Employment patterns in OECD countries," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20198, London School of Economics and Political Science, LSE Library.
  14. Karanassou, Marika & Snower, Dennis J, 1998. "How Labour Market Flexibility Affects Unemployment: Long-Term Implications of the Chain Reaction Theory," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(448), pages 832-49, May.
  15. Burgess, Simon & Profit, Stefan, 1998. "Externalities in the Matching of Workers and Firms in Britain," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1854, C.E.P.R. Discussion Papers.
  16. Simon Burgess & Julia Lane & David Stevens, 1996. "Job Flows, Worker Flows and Churning," Labor and Demography, EconWPA 9604004, EconWPA.
  17. Patricia M. Anderson & Simon M. Burgess, 2000. "Empirical Matching Functions: Estimation and Interpretation Using State-Level Data," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 93-102, February.
  18. Burgess, Simon M, 1992. "The Flow into Unemployment in Britain," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 102(413), pages 888-95, July.
  19. Burgess, Simon M, 1993. "A Model of Competition between Unemployed and Employed Job Searchers: An Application to the Unemployment Outflow Rate in Britain," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 103(420), pages 1190-204, September.
  20. Patricia M. Anderson & Simon M. Burgess, 1995. "Empirical Matching Functions: Estimation and Interpretation Using Disaggregate Data," NBER Working Papers 5001, National Bureau of Economic Research, Inc.
  21. Berg, G.J. & Ours, J.C., 1993. "Unemployment dynamics and duration dependence," Serie Research Memoranda, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics 0022, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  22. C Bean, 1992. "European Unemployment: A Survey," CEP Discussion Papers dp0071, Centre for Economic Performance, LSE.
  23. Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(448), pages 802-16, May.
  24. repec:dgr:uvatin:1997050 is not listed on IDEAS
  25. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198284345, October.
  26. Junankar, P N & Price, Simon, 1984. "The Dynamics of Unemployment: Structural Change and Unemployment Flows," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 94(376a), pages 158-65, Supplemen.
  27. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, Econometric Society, vol. 47(4), pages 939-56, July.
  28. Oliver Jean Blanchard & Peter Diamond, 1990. "The Cyclical Behovior of the Gross Flows of U.S. Workers," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 85-156.
  29. repec:dgr:uvatin:2097050 is not listed on IDEAS
  30. Burgess, Simon M, 1992. "A Search Model with Job Changing Costs: 'Eurosclerosis' and Unemployment," Oxford Economic Papers, Oxford University Press, vol. 44(1), pages 75-88, January.
  31. Nickell, S J, 1985. "The Determinants of Equilibrium Unemployment in Britain: A Reply," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 95(377), pages 196-98, March.
  32. Burgess, Simon M., 1994. "Matching models and labour market flows," European Economic Review, Elsevier, vol. 38(3-4), pages 809-816, April.
  33. repec:wop:humbsf:1998-19 is not listed on IDEAS
  34. Helene Turon, 2003. "Inflow Composition, Duration Dependence and Their Impact on The Unemployment Outflow Rate," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(1), pages 31-47, February.
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