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Unemployment, Participation and Worker Flows Over the Life Cycle

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  • Sekyu Choi
  • Alexandre Janiak
  • Benjamín Villena-Roldán

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Abstract

We estimate and report life cycle transition probabilities between employment, unemployment and inactivity for male workers using Current Population Survey monthly files. We assess the relative importance of each probability in explaining the life cycle profiles of participation and unemployment rates using a novel decomposition method. A key robust finding is that most differences in participation and unemployment over the life cycle can be attributed to the probability of leaving employment and the probability of transiting from inactivity to unemployment, while transitions from unemployment to employment (the job finding probability) play secondary roles. We then show that a simple life cycle extension of a three-state labor search model with leisure shocks can qualitatively replicate the empirical unemployment and participation life cycle profiles, without introducing age or worker heterogeneity in market abilities. We conclude that models that seek to explain life cycle work patterns should not ignore transitions to and from inactivity. JEL Codes: D91, E24, J64.

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Bibliographic Info

Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 278.

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Date of creation: 2011
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Handle: RePEc:edj:ceauch:278

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  1. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Aysegul Sahin, 2008. "Aggregate Implications of Indivisible Labor, Incomplete Markets, and Labor Market Frictions," NBER Working Papers 13871, National Bureau of Economic Research, Inc.
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  8. Chéron, Arnaud & Hairault, Jean-Olivier & Langot, François, 2008. "Life-Cycle Equilibrium Unemployment," IZA Discussion Papers 3396, Institute for the Study of Labor (IZA).
  9. Guido Menzio & Irina A. Telyukova & Ludo Visschers, 2012. "Directed Search over the Life Cycle," PIER Working Paper Archive 12-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  10. Alexandre Janiak & Paulo Santos Monteiro, 2010. "Labor force heterogeneity: implications for the relation between aggregate volatility and government size," Documentos de Trabajo 272, Centro de Economía Aplicada, Universidad de Chile.
  11. Jean-Olivier Hairault & Francois Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and Older Workers' Employment: The Case for Delaying the Retirement Age," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1034-1076, 09.
  12. Abowd, John M & Zellner, Arnold, 1985. "Estimating Gross Labor-Force Flows," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 254-83, June.
  13. Fernando Alvarez & Marcelo Veracierto, 2000. "Labor-Market Policies in an Equilibrium Search Model," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 265-316 National Bureau of Economic Research, Inc.
  14. Pries, Michael & Rogerson, Richard, 2009. "Search frictions and labor market participation," European Economic Review, Elsevier, vol. 53(5), pages 568-587, July.
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