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Unemployment, Participation and Worker Flows over the Life Cycle

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  • Benjamin Villena-Roldan

    (Universidad de Chile, Center for Applied Economics)

  • Alexandre Janiak

    (Universidad de Chile, Center for Applied Economics)

  • Sekyu Choi

    (Universitat Autonoma de Barcelona)

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.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 602.

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Date of creation: 2011
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Handle: RePEc:red:sed011:602

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References

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  1. Ludo Visschers & Irina A. Telyukova & Guido Menzio, 2010. "Directed Search over the Life Cycle," 2010 Meeting Papers 185, Society for Economic Dynamics.
  2. 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.
  3. Pietro Garibaldi & Etienne Wasmer, 2005. "Equilibrium Search Unemployment, Endogenous Participation, And Labor Market Flows," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 851-882, 06.
  4. 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.
  5. Ravn, Morten O., 2006. "The Consumption-Tightness Puzzle," CEPR Discussion Papers 5670, C.E.P.R. Discussion Papers.
  6. Marcelo Veracierto, 2002. "On the cyclical behavior of employment, unemployment and labor force participation," Working Paper Series WP-02-12, Federal Reserve Bank of Chicago.
  7. Michael W. Elsby & Ryan Michaels & Gary Solon, 2007. "The Ins and Outs of Cyclical Unemployment," NBER Working Papers 12853, National Bureau of Economic Research, Inc.
  8. 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.
  9. Gary D. Hansen & Selahattin Imrohoroglu, 2006. "Consumption Over the Life Cycle: The Role of Annuities," NBER Working Papers 12341, National Bureau of Economic Research, Inc.
  10. Chéron, Arnaud & Hairault, Jean-Olivier & Langot, François, 2008. "Life-Cycle Equilibrium Unemployment," IZA Discussion Papers 3396, Institute for the Study of Labor (IZA).
  11. 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.
  12. 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.
  13. 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.
  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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Cited by:
  1. Chang, Yongsung & Hong, Jay H. & Karabarbounis , Marios, 2014. "Labor-Market Uncertainty and Portfolio Choice Puzzles," Working Paper 14-13, Federal Reserve Bank of Richmond.
  2. Jean-Olivier Hairault & François Langot & Thepthida Sopraseuth, 2014. "Why is Old Workers’ Labor Market more Volatile? Unemployment Fluctuations over the Life-Cycle," TEPP Working Paper 2014-03, TEPP.
  3. Sekyu Choi, 2013. "On Households and Unemployment," 2013 Meeting Papers 992, Society for Economic Dynamics.

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