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The Ins and Outs of UK Unemployment

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  • Jennifer C. Smith

Abstract

This paper shows that in the UK, increases in unemployment in a recession are driven by rises in the separation rate. A new decomposition of unemployment dynamics is devised that does not require unemployment to be in steady state at all times. This is important because low UK transition rates – one quarter the size of the US –imply substantial deviation of unemployment from steady state near cyclical turning points. In periods of moderation, the job finding rate is shown to have most influence on UK unemployment dynamics. Evidence comes from the first study of monthly data derived from individuals’ labour market spells recorded in the British Household Panel Survey from 1988 to 2008.
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  • Jennifer C. Smith, 2011. "The Ins and Outs of UK Unemployment," Economic Journal, Royal Economic Society, vol. 121(552), pages 402-444, May.
  • Handle: RePEc:ecj:econjl:v:121:y:2011:i:552:p:402-444
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    1. Gary Solon & Ryan Michaels & Michael W. L. Elsby, 2009. "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 84-110, January.
    2. Eran Yashiv, 2008. "U.S. Labor Market Dynamics Revisited," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 779-806, March.
    3. Ramey, Garey & Shigeru Fujita, 2006. "The Cyclicality of Job Loss and Hiring," University of California at San Diego, Economics Working Paper Series qt4nz8p839, Department of Economics, UC San Diego.
    4. Michael W. L. Elsby & Jennifer C. Smith & Jonathan Wadsworth, 2011. "The role of worker flows in the dynamics and distribution of UK unemployment," Oxford Review of Economic Policy, Oxford University Press, vol. 27(2), pages 338-363.
    5. Abowd, John M & Zellner, Arnold, 1985. "Estimating Gross Labor-Force Flows," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 254-283, June.
    6. Barnichon, Regis, 2012. "Vacancy posting, job separation and unemployment fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 36(3), pages 315-330.
    7. 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, May.
    8. 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, February.
    9. Michael W. L. Elsby & Bart Hobijn & Ayşegül Şahin, 2013. "Unemployment Dynamics in the OECD," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 530-548, May.
    10. Robert Shimer, 2012. "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 127-148, April.
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