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Labor Force Status Dynamics in the German Labor Market: Individual Heterogeneity and Cyclical Sensitivity

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  • Kluve, Jochen
  • Schaffner, Sandra
  • Schmidt, Christoph M.

Abstract

The aggregate average unemployment rate in a given country is essentially the result of individual workers' transitions between the three core labor force states, employment, unemployment, and inactivity. The dynamics of these transitions depend both on individual duration in a particular state and the transition probabilities between states. Individual transitions, in turn, depend on personal characteristics, i.e. observable sociodemographic attributes and unobserved factors. Simultaneously, person-specific dynamics may be influenced by swings of the business cycle that differentially affect the likelihood of individual transitions. This paper analyzes these labor force status dynamics for the German labor market using comprehensive data on monthly transitions from the GSOEP, covering the time periods 1983-2003 for West Germany, and 1992-2003 for East Germany. For 18 demographic cells defined by sex, 3 age categories, and 3 education categories, the model uses loading factors to translate unobserved shocks to the labor market into observed cellspecific unemployment rates as well as bilateral transition probabilities between all states. This approach allows us to distinguish individual heterogeneity and cyclical volatility in describing labor force status flows. The results show that the experience of high unemployment rates is more sensitive to cyclical behavior for certain demographic groups, specifically unskilled and young workers. Heterogeneity in unemployment and transition rates differs between East and West Germany, as well as between the sexes. In East Germany, all demographic cells are almost entirely detached from the cycle. The unemployment structure of West German women is rather homogenous across age and education, in contrast to men and East-German women. The decisive component of the heterogeneity in unemployment dynamics is the re-employment rate. --

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Bibliographic Info

Paper provided by Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen in its series Technical Reports with number 2006,20.

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Date of creation: 2006
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Handle: RePEc:zbw:sfb475:200620

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Keywords: Labor force; Unemployment dynamics; Business Cycle; Worker heterogeneity;

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References

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  1. Burda, Michael & Wyplosz, Charles, 1994. "Gross worker and job flows in Europe," European Economic Review, Elsevier, vol. 38(6), pages 1287-1315, June.
  2. Schmidt, Christoph M., 1999. "The Heterogeneity and Cyclical Sensitivity of Unemployment: An Exploration of German Labor Market Flows," IZA Discussion Papers 84, Institute for the Study of Labor (IZA).
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  12. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  13. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
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Citations

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Cited by:
  1. Marcus Tamm, 2010. "Child Benefit Reform and Labor Market Participation," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(3), pages 313-327, June.
  2. Schaffner, Sandra, 2009. "Heterogeneity in the cyclical sensitivity of job-to-job flows," Technical Reports 2009,13, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
  3. Matthias S. Hertweck & Oliver Sigrist, 2013. "The Aggregate Effects of the Hartz Reforms in Germany," Working papers 2013/01, Faculty of Business and Economics - University of Basel.
  4. Rubart, Jens & Semmler, Willi, 2007. "East German Unemployment from a Macroeconomic Perspective," Darmstadt Discussion Papers in Economics 35712, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  5. Nordmeier, Daniela, 2012. "Worker flows in Germany: Inspecting the time aggregation bias," IAB Discussion Paper 201212, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  6. Bachmann, Ronald & Schaffner, Sandra, 2009. "Biases in the measurement of labour market dynamics," Technical Reports 2009,12, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.

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