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Decomposing the Ins and Outs of Cyclical Unemployment

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  • Ronald Bachmann

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  • Mathias Sinning

Abstract

This paper analyzes the contribution of the socioeconomic and demographic composition of the pool of employed and unemployed individuals to the dynamics of the labor market in different phases of the business cycle. Using individual level data from the Current Population Survey (CPS), we decompose differences in employment status transition rates between economic upswings and downturns into composition effects and behavioral effects. We find that overall composition effects play a minor role for the cyclicality of the unemployment outflow rate, although the contribution of the duration of unemployment is significant. In contrast, composition effects dampen the cyclicality of the unemployment inflow rate considerably. We further observe that the initially positive contribution of composition effects to a higher unemployment outflow rate turns negative over the course of the recession.

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Bibliographic Info

Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0305.

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Length: 30 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:rwi:repape:0305

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Keywords: Gross worker flows; unemployment duration; decomposition analysis; Blinder-Oaxaca;

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  1. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  2. Bachmann, Ronald & David, Peggy, 2009. "The importance of two-sided heterogeneity for the cyclicality of labour market dynamics," Technical Reports 2009,05, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
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  20. Katharine G. Abraham & Robert Shimer, 2001. "Changes in Unemployment Duration and Labor Force Attachment," NBER Working Papers 8513, National Bureau of Economic Research, Inc.
  21. Ben Jann, 2008. "The Blinder–Oaxaca decomposition for linear regression models," Stata Journal, StataCorp LP, vol. 8(4), pages 453-479, December.
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Cited by:
  1. Elish Kelly & Seamus McGuinness & Philip O’Connell & David Haugh & Alberto González Pandiella, 2013. "Transitions in and out of Unemployment among Young People in the Irish Recession," OECD Economics Department Working Papers 1084, OECD Publishing.

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