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Accounting for unemployment in the Great Recession : nonparticipation matters

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  • Marianna Kudlyak
  • Felipe Schwartzman

Abstract

We conduct an accounting exercise of the role of worker flows between unemployment, employment, and labor force nonparticipation in the dynamics of the aggregate unemployment rate across four recent recessions: 1982-1983, 1990-1991, 2001, and 2007-2009 (the "Great Recession"). We show that, whereas during earlier recessions it was sufficient to examine the flows between employment and unemployment to account for the dynamics of the unemployment rate, this was not true in the Great Recession. The increased importance of the flows between nonparticipation and unemployment is documented across all age and gender groups.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 12-04.

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Date of creation: 2012
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Handle: RePEc:fip:fedrwp:12-04

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Keywords: Business cycles ; Unemployment ; Labor market;

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References

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  1. Michael W. L. Elsby & Jennifer C. Smith & Jonathan Wadsworth, 2011. "The role of worker flows in the dynamics and distribution of UK unemployment," Oxford Review of Economic Policy, Oxford University Press, vol. 27(2), pages 338-363.
  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. Shigeru Fujita & Garey Ramey, 2009. "The Cyclicality Of Separation And Job Finding Rates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 415-430, 05.
  4. Robert Shimer, 2012. "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 127-148, April.
  5. Jennifer C. Smith, 2011. "The Ins and Outs of UK Unemployment," Economic Journal, Royal Economic Society, vol. 121(552), pages 402-444, 05.
  6. Michael W. L. Elsby & Bart Hobijn & Aysegul Sahin, 2010. "The Labor Market in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 1-69.
  7. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Ayşegül Şahin, 2012. "Is Labor Supply Important for Business Cycles?," NBER Working Papers 17779, National Bureau of Economic Research, Inc.
  8. 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.
  9. Aysegül Sahin & Joseph Song & Bart Hobijn, 2010. "The unemployment gender gap during the 2007 recession," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 16(Feb).
  10. Poterba, James M & Summers, Lawrence H, 1986. "Reporting Errors and Labor Market Dynamics," Econometrica, Econometric Society, vol. 54(6), pages 1319-38, November.
  11. Gomes, Pedro, 2012. "Labour market flows: Facts from the United Kingdom," Labour Economics, Elsevier, vol. 19(2), pages 165-175.
  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.
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Cited by:
  1. Peter Diamond, 2013. "Cyclical unemployment, structural unemployment," Working Papers 13-5, Federal Reserve Bank of Boston.
  2. Michael W.L. Elsby & Bart Hobijn & Aysegül Sahin, 2013. "On the importance of the participation margin for market fluctuations," Working Paper Series 2013-05, Federal Reserve Bank of San Francisco.
  3. Diamond, Peter A., 2013. "Structural unemployment," Public Policy Brief, Federal Reserve Bank of Boston.
  4. Julie L. Hotchkiss & M. Melinda Pitts & Fernando Rios-Avila, 2012. "A closer look at nonparticipants during and after the Great Recession," Working Paper 2012-10, Federal Reserve Bank of Atlanta.
  5. Christopher L. Foote & Richard W. Ryan, 2014. "Labor-Market Polarization Over the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 2014, Volume 29 National Bureau of Economic Research, Inc.
  6. Kudlyak, Marianna, 2013. "A Cohort Model of Labor Force Participation," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 25-43.

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