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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. Pries, Michael & Rogerson, Richard, 2009. "Search frictions and labor market participation," European Economic Review, Elsevier, vol. 53(5), pages 568-587, July.
  2. Veracierto, Marcelo, 2008. "On the cyclical behavior of employment, unemployment and labor force participation," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1143-1157, September.
  3. Guido Menzio & Irina A. Telyukova & Ludo Visschers, 2012. "Directed Search over the Life Cycle," NBER Working Papers 17746, National Bureau of Economic Research, Inc.
  4. Fernando Alvarez & Marcelo Veracierto, 1999. "Labor market policies in an equilibrium search model," Working Paper Series WP-99-10, Federal Reserve Bank of Chicago.
  5. Gary Solon & Ryan Michaels & Michael W. L. Elsby, 2009. "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 84-110, January.
  6. Ravn, Morten O., 2006. "The Consumption-Tightness Puzzle," CEPR Discussion Papers 5670, C.E.P.R. Discussion Papers.
  7. Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegül, 2008. "Aggregate implications of indivisible labor, incomplete markets, and labor market frictions," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 961-979, July.
  8. Arnaud Ch�ron & Jean-Olivier Hairault & Fran�ois Langot, 2013. "Life-Cycle Equilibrium Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 31(4), pages 843 - 882.
  9. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  10. Pietro Garibaldi & Etienne Wasmer, 2005. "Equilibrium Search Unemployment, Endogenous Participation and Labor Market Flows," Sciences Po publications info:hdl:2441/8921, Sciences Po.
  11. 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.
  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. Gary Hansen & Selahattin Imrohoroglu, 2008. "Consumption over the Life Cycle: The Role of Annuities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 566-583, July.
  14. 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.
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Cited by:
  1. Hairault, Jean-Olivier & Langot, François & Sopraseuth, Thepthida, 2014. "Why is Old Workers' Labor Market More Volatile? Unemployment Fluctuations over the Life-Cycle," IZA Discussion Papers 8076, Institute for the Study of Labor (IZA).
  2. Sekyu Choi, 2013. "On Households and Unemployment," 2013 Meeting Papers 992, Society for Economic Dynamics.

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