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The Ins and Outs of Cyclical Unemployment

Listed author(s):
  • Gary Solon
  • Ryan Michaels
  • Michael W. L. Elsby

A dominant trend in recent modeling of labor market fluctuations is to treat unemployment inflows as acyclical. This trend has been encouraged by recent influential papers that stress the role of longer unemployment spells, rather than more unemployment spells, in accounting for recessionary unemployment. After reviewing an empirical literature going back several decades, we apply a convenient log change decomposition to Current Population Survey data to characterize rising unemployment in each postwar recession. We conclude that a complete understanding of cyclical unemployment requires an explanation of countercyclical inflow rates, especially for job losers (layoffs), as well as procyclical outflow rates. (JEL E24, E32)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.84
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File URL: http://www.aeaweb.org/aej/mac/data/2007-0013_data.zip
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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 1 (2009)
Issue (Month): 1 (January)
Pages: 84-110

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Handle: RePEc:aea:aejmac:v:1:y:2009:i:1:p:84-110
Note: DOI: 10.1257/mac.1.1.84
Contact details of provider: Web page: https://www.aeaweb.org/aej-macro
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References listed on IDEAS
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  1. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-959, November.
  2. Stephen T. Marston, 1976. "Employment Instability and High Unemployment Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(1), pages 169-210.
  3. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  4. Eran Yashiv, 2007. "U.S. Labor Market Dynamics Revisited," CEP Discussion Papers dp0831, Centre for Economic Performance, LSE.
  5. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  6. Mark Gertler & Antonella Trigari, 2009. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 38-86, 02.
  7. Robert Shimer, 2005. "Discussion of Robert E. Hall's REStat Lecture "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market"," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 408-410, August.
  8. Shigeru Fujita & Garey Ramey, 2006. "The cyclicality of job loss and hiring," Working Papers 06-17, Federal Reserve Bank of Philadelphia.
  9. George L. Perry, 1972. "Unemployment Flows in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 3(2), pages 245-292.
  10. Rotemberg, Julio J., 2006. "Cyclical Wages in a Search-and-Bargaining Model with Large Firms," CEPR Discussion Papers 5791, C.E.P.R. Discussion Papers.
  11. Rudanko, Leena, 2009. "Labor market dynamics under long-term wage contracting," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 170-183, March.
  12. Baker, Michael, 1992. "Unemployment Duration: Compositional Effects and Cyclical Variability," American Economic Review, American Economic Association, vol. 82(1), pages 313-321, March.
  13. Hoyt Bleakley & Ann E. Ferris & Jeffrey C. Fuhrer, 1999. "New data on worker flows during business cycles," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 49-76.
  14. Sider, Hal, 1985. "Unemployment Duration and Incidence: 1968-82," American Economic Review, American Economic Association, vol. 75(3), pages 461-472, June.
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  16. Helge Braun & Reinout De Bock & Riccardo DiCecio, 2006. "Aggregate shocks and labor market fluctuations," Working Papers 2006-004, Federal Reserve Bank of St. Louis.
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  18. repec:uwp:jhriss:v:6:y:1971:i:4:p:448-465 is not listed on IDEAS
  19. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
  20. Robert Shimer, 2005. "The cyclicality of hires, separations, and job-to-job transitions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 493-508.
  21. George A. Akerlof & Andrew K. Rose & Janet L. Yellen, 1988. "Job Switching and Job Satisfaction in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 495-594.
  22. Olivier Blanchard & Jordi Gali, 2006. "A new Keynesian model with unemployment," Working Paper Research 92, National Bank of Belgium.
  23. Katharine G. Abraham & Robert Shimer, 2001. "Changes in Unemployment Duration and Labor Force Attachment," NBER Working Papers 8513, National Bureau of Economic Research, Inc.
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