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Decomposing the Ins and Outs of Cyclical Unemployment

Listed author(s):
  • Ronald Bachmann

    ()

  • Mathias Sinning

    ()

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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File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp571.pdf
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Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2012-571.

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Length: 30 Pages
Date of creation: Feb 2012
Handle: RePEc:acb:cbeeco:2012-571
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  14. Ronald Bachmann & Peggy David, 2009. "The Importance of Two-Sided Heterogeneity for the Cyclicality of Labour Market Dynamics," SFB 649 Discussion Papers SFB649DP2009-017, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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  18. Nicole M. Fortin, 2008. "The Gender Wage Gap among Young Adults in the United States: The Importance of Money versus People," Journal of Human Resources, University of Wisconsin Press, vol. 43(4).
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  28. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
  29. F. L. Jones, 1983. "On Decomposing the Wage Gap: A Critical Comment on Blinder's Method," Journal of Human Resources, University of Wisconsin Press, vol. 18(1), pages 126-130.
  30. 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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