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Projecting Unemployment Durations: A Factor-Flows Simulation Approach With Application to the COVID-19 Recession

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  • Gabriel Chodorow-Reich
  • John Coglianese

Abstract

We propose a three-step factor-flows simulation-based approach to forecast the duration distribution of unemployment. Step 1: estimate individual transition hazards across employment, temporary layoff, permanent layoff, quitter, entrant, and out of the labor force, with each hazard depending on an aggregate component as well as an individual's labor force history. Step 2: relate the aggregate components to the overall unemployment rate using a factor model. Step 3: combine the individual duration dependence, factor structure, and an auxiliary forecast of the unemployment rate to simulate a panel of individual labor force histories. Applying our approach to the July Blue Chip forecast of the COVID-19 recession, we project that 1.6 million workers laid off in April 2020 remain unemployed six months later. Total long-term unemployment rises thereafter and eventually reaches more 4.5 million individuals unemployed for more than 26 weeks and almost 2 million individuals unemployed for more than 46 weeks. Long-term unemployment rises even more in a more pessimistic recovery scenario, but remains below the level in the Great Recession due to a high amount of labor market churn.

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  • Gabriel Chodorow-Reich & John Coglianese, 2020. "Projecting Unemployment Durations: A Factor-Flows Simulation Approach With Application to the COVID-19 Recession," NBER Working Papers 27566, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27566
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    References listed on IDEAS

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    1. Gabriel Chodorow-Reich & John Coglianese & Loukas Karabarbounis, 2019. "The Macro Effects of Unemployment Benefit Extensions: a Measurement Error Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 227-279.
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    Cited by:

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    2. Zhu, Jun & Ho, Kung-Cheng & Luo, Sijia & Peng, Langchuan, 2023. "Pandemic and tax avoidance: Cross-country evidence," Economic Modelling, Elsevier, vol. 124(C).
    3. Trigari, Antonella & Gertler, Mark & Huckfeldt, Christopher, 2022. "Temporary Layoffs, Loss-of-Recall, and Cyclical Unemployment Dynamics," CEPR Discussion Papers 17376, C.E.P.R. Discussion Papers.
    4. Forsythe, Eliza & Kahn, Lisa B. & Lange, Fabian & Wiczer, David, 2022. "Where have all the workers gone? Recalls, retirements, and reallocation in the COVID recovery," Labour Economics, Elsevier, vol. 78(C).
    5. Abdullah Alsharef & Siddharth Banerjee & S M Jamil Uddin & Alex Albert & Edward Jaselskis, 2021. "Early Impacts of the COVID-19 Pandemic on the United States Construction Industry," IJERPH, MDPI, vol. 18(4), pages 1-20, February.
    6. Jessica Gallant & Kory Kroft & Fabian Lange & Matthew J. Notowidigdo, 2020. "Temporary Unemployment and Labor Market Dynamics during the COVID-19 Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(3 (Fall)), pages 167-226.
    7. Victoria Gregory, 2023. "Labor Force Exiters around Recessions: Who Are They?," Review, Federal Reserve Bank of St. Louis, vol. 105(1), pages 9-20, January.
    8. Till von Wachter, 2020. "Lost Generations: Long‐Term Effects of the COVID‐19 Crisis on Job Losers and Labour Market Entrants, and Options for Policy," Fiscal Studies, John Wiley & Sons, vol. 41(3), pages 549-590, September.
    9. Hall, Robert E. & Kudlyak, Marianna, 2022. "The unemployed with jobs and without jobs," Labour Economics, Elsevier, vol. 79(C).
    10. Adriana AnaMaria Davidescu & Simona-Andreea Apostu & Aurel Marin, 2021. "Forecasting the Romanian Unemployment Rate in Time of Health Crisis—A Univariate vs. Multivariate Time Series Approach," IJERPH, MDPI, vol. 18(21), pages 1-31, October.
    11. Gros, Daniel & Ounnas, Alexandre, 2021. "Labour market responses to the Covid-19 crisis in the United States and Europe," CEPS Papers 32985, Centre for European Policy Studies.
    12. Di Novi, Cinzia & Paruolo, Paolo & Verzillo, Stefano, 2023. "Does labour protection influence mental-health responses to employment shocks? Evidence on older workers in Europe," Economic Modelling, Elsevier, vol. 126(C).
    13. Malak Kandoussi & François Langot, 2021. "On the heterogeneous impacts of the COVID-19 lockdown on US unemployment," TEPP Working Paper 2021-01, TEPP.
    14. Sun, Zhuanlan & Liu, Sheng & Li, Yiwei & Ma, Chao, 2023. "Expedited editorial decision in COVID-19 pandemic," Journal of Informetrics, Elsevier, vol. 17(1).
    15. Won Choi & Sang-joon Lee & Woo-je Lee & Eun-mi Beak & Ki-youn Kim, 2022. "Job Satisfaction Level of Safety and Health Manager in Construction Industry: Pandemic Period," IJERPH, MDPI, vol. 19(10), pages 1-15, May.
    16. Eliza Forsythe & Lisa B. Kahn & Fabian Lange & David G. Wiczer, 2020. "Searching, Recalls, and Tightness: An Interim Report on the COVID Labor Market," NBER Working Papers 28083, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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