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The role of worker flows in the dynamics and distribution of UK unemployment

  • Michael W. L. Elsby
  • Jennifer C. Smith
  • Jonathan Wadsworth

Unemployment varies substantially over time and across sub-groups of the labour market. Worker flows among labour-market states act as key determinants of this variation. We examine how the structure of unemployment across groups and its cyclical movements across time are shaped by changes in labour-market flows. Using novel estimates of flow transition rates for the UK over the last 35 years, we decompose unemployment variation into parts accounted for by changes in rates of job loss, job-finding, and flows via non-participation. Close to two-thirds of the volatility of unemployment in the UK over this period can be traced to rises in rates of job loss that accompany recessions. The share of this inflow contribution has been broadly the same in each of the past three recessions. Decreased job-finding rates account for around one-quarter of unemployment cyclicality and the remaining variation can be attributed to flows via non-participation. Digging deeper into the structure of unemployment by gender, age, and education, the flow approach is shown to provide a richer understanding of the unemployment experiences across population sub-groups. Copyright 2011, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oxrep/grr014
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Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 27 (2011)
Issue (Month): 2 ()
Pages: 338-363

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Handle: RePEc:oup:oxford:v:27:y:2011:i:2:p:338-363
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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. Smith, Jennifer, 2010. "The Ins and Outs of UK Unemployment," The Warwick Economics Research Paper Series (TWERPS) 944, University of Warwick, Department of Economics.
  3. Peter J. Kuhn (ed.), 2002. "Losing Work, Moving On: International Perspectives on Worker Displacement," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number lwmo, June.
  4. 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.
  5. Michael Elsby & Bart Hobijn & Aysegul Sahin, 2008. "Unemployment Dynamics in the OECD," NBER Working Papers 14617, National Bureau of Economic Research, Inc.
  6. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1992. "Earnings losses of displaced workers," Working Paper Series, Macroeconomic Issues 92-28, Federal Reserve Bank of Chicago.
  7. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  8. Gomes, Pedro, 2012. "Labour market flows: Facts from the United Kingdom," Labour Economics, Elsevier, vol. 19(2), pages 165-175.
  9. Simon Burgess & Hélène Turon, 2005. "Unemployment dynamics in Britain," Economic Journal, Royal Economic Society, vol. 115(503), pages 423-448, 04.
  10. Michael W.L. Elsby & Jennifer C. Smith, 2010. "The Great Recession In The Uk Labour Market: A Transatlantic Perspective," National Institute Economic Review, National Institute of Economic and Social Research, vol. 214(1), pages R26-R37, October.
  11. 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.
  12. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, March.
  13. Gregg, Paul & Wadsworth, Jonathan, 1995. "A Short History of Labour Turnover, Job Tenure, and Job Security, 1975-93," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 73-90, Spring.
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