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Unemployment dynamics, duration and equilibrium: evidence from Britain

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  • Simon Burgess
  • Helene Turon
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    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 chance 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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    File URL: http://eprints.lse.ac.uk/20162/
    File Function: Open access version.
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    Bibliographic Info

    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 20162.

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    Length: 60 pages
    Date of creation: Nov 2000
    Date of revision:
    Handle: RePEc:ehl:lserod:20162

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    Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
    Phone: +44 (020) 7405 7686
    Web page: http://www.lse.ac.uk/
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    Related research

    Keywords: Unemployment dynamics; unemployment duration; unemployment flows; nonlinear dynamics; persistence;

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    References

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    1. 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, vol. 108(448), pages 832-49, May.
    2. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
    3. Jaap H. Abbring & Gerard J. van den Berg & Jan C. van Ours, 1997. "Business Cycles and Compositional Variation in U.S. Unemployment," Tinbergen Institute Discussion Papers 97-050/3, Tinbergen Institute.
    4. Burgess, Simon M. & Profit, Stefan, 1998. "Externalities in the matching of workers and firms in Britain," SFB 373 Discussion Papers 1998,19, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    5. Michael R. Darby & John C. Haltiwanger & Mark W. Plant, 1985. "Unemployment-Rate Dynamics and Persistent Unemployment Under Rational Expectations," NBER Working Papers 1558, National Bureau of Economic Research, Inc.
    6. Mortensen, Dale T., 1994. "The cyclical behavior of job and worker flows," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1121-1142, November.
    7. 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.
    8. Stephen Machin & Alan Manning, 1998. "The causes and consequences of long-term unemployment in Europe," LSE Research Online Documents on Economics 20255, London School of Economics and Political Science, LSE Library.
    9. Berg, G.J. & Ours, J.C., 1993. "Unemployment dynamics and duration dependence," Serie Research Memoranda 0022, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    10. Burgess, Simon M., 1994. "Matching models and labour market flows," European Economic Review, Elsevier, vol. 38(3-4), pages 809-816, April.
    11. 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.
    12. repec:wop:humbsf:1998-19 is not listed on IDEAS
    13. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
    14. Abbring, J.H. & Berg, G. van den & Ours, J.C. van, 1999. "The Anatomy of Unemployment Dynamics," Discussion Paper 1999-81, Tilburg University, Center for Economic Research.
    15. 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, vol. 103(420), pages 1190-204, September.
    16. Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-16, May.
    17. 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.
    18. Nickell, S J, 1985. "The Determinants of Equilibrium Unemployment in Britain: A Reply," Economic Journal, Royal Economic Society, vol. 95(377), pages 196-98, March.
    19. 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.
    20. Berg, G. van den & Ours, J.C. van, 1996. "Unemployment dynamics and duration dependence," Open Access publications from Tilburg University urn:nbn:nl:ui:12-86874, Tilburg University.
    21. repec:dgr:uvatin:1997050 is not listed on IDEAS
    22. Price, Simon, 1985. "The Determinants of Equilibrium Unemployment in Britain: A Comment," Economic Journal, Royal Economic Society, vol. 95(377), pages 189-95, March.
    23. Burda, Michael C & Wyplosz, Charles, 1993. "Gross Worker and Job Flows in Europe," CEPR Discussion Papers 868, C.E.P.R. Discussion Papers.
    24. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, Octomber.
    25. repec:dgr:uvatin:2097050 is not listed on IDEAS
    26. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July.
    27. Burgess, Simon M, 1992. "The Flow into Unemployment in Britain," Economic Journal, Royal Economic Society, vol. 102(413), pages 888-95, July.
    28. 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.
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