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Accounting for unemployment in the Great Recession : nonparticipation matters

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Listed author(s):
  • Marianna Kudlyak
  • Felipe Schwartzman

Abstract

We conduct an accounting exercise of the role of worker flows between unemployment, employment, and labor force nonparticipation in the dynamics of the aggregate unemployment rate across four recent recessions: 1982-1983, 1990-1991, 2001, and 2007-2009 (the "Great Recession"). We show that, whereas during earlier recessions it was sufficient to examine the flows between employment and unemployment to account for the dynamics of the unemployment rate, this was not true in the Great Recession. The increased importance of the flows between nonparticipation and unemployment is documented across all age and gender groups.

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Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 12-04.

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Date of creation: 2012
Handle: RePEc:fip:fedrwp:12-04
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Keywords: Business cycles ; Unemployment ; Labor market;

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  1. Gomes, Pedro, 2012. "Labour market flows: Facts from the United Kingdom," Labour Economics, Elsevier, vol. 19(2), pages 165-175.
  2. 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.
  3. Michael W. L. Elsby & Bart Hobijn & Aysegul Sahin, 2010. "The Labor Market in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 1-69.
  4. Jennifer C. Smith, 2011. "The Ins and Outs of UK Unemployment," Economic Journal, Royal Economic Society, vol. 121(552), pages 402-444, 05.
  5. 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.
  6. 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.
  7. Veracierto, Marcelo, 2008. "On the cyclical behavior of employment, unemployment and labor force participation," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1143-1157, September.
  8. Poterba, James M & Summers, Lawrence H, 1986. "Reporting Errors and Labor Market Dynamics," Econometrica, Econometric Society, vol. 54(6), pages 1319-1338, November.
  9. 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, 05.
  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.
  11. Aysegül Sahin & Joseph Song & Bart Hobijn, 2010. "The unemployment gender gap during the 2007 recession," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 16(Feb).
  12. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Ayşegül Şahin, 2012. "Is Labor Supply Important for Business Cycles?," NBER Working Papers 17779, National Bureau of Economic Research, Inc.
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Cited by:

  1. Elsby, Michael W.L. & Hobijn, Bart & Şahin, Ayşegül, 2015. "On the importance of the participation margin for labor market fluctuations," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 64-82.
  2. Kudlyak, Marianna, 2013. "A Cohort Model of Labor Force Participation," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 25-43.
  3. Christopher J. Erceg & Andrew T. Levin, 2014. "Labor Force Participation and Monetary Policy in the Wake of the Great Recession," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(S2), pages 3-49, October.
  4. Christopher L. Foote & Richard W. Ryan, 2015. "Labor-Market Polarization over the Business Cycle," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 371-413.
  5. Diamond, Peter A., 2013. "Structural unemployment," Public Policy Brief, Federal Reserve Bank of Boston.
  6. Peter Diamond, 2013. "Cyclical Unemployment, Structural Unemployment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(3), pages 410-455, August.
  7. Julie L. Hotchkiss & M. Melinda Pitts & Fernando Rios-Avila, 2012. "A closer look at nonparticipants during and after the Great Recession," FRB Atlanta Working Paper 2012-10, Federal Reserve Bank of Atlanta.
  8. Michael W. L. Elsby & Ryan Michaels & David Ratner, 2015. "The Beveridge Curve: A Survey," Journal of Economic Literature, American Economic Association, vol. 53(3), pages 571-630, September.
  9. Michael Elsby & Bart Hobijn & Aysegül Sahin, 2013. "On the importance of the participation margin for market fluctuations," Working Paper Series 2013-05, Federal Reserve Bank of San Francisco.

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