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The Effect of Shocks to Labour Market Flows on Unemployment and Participation Rates

Author

Listed:
  • Robert Dixon

    (Department of Economics, The University of Melbourne)

  • Guay C. Lim

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Jan C. van Ours

    (Department of Economics and CentER, Tilburg University; Department of Economics, The University of Melbourne; CEPR, United Kingdom; CESifo, Germany; and IZA, Germany)

Abstract

This paper presents an analysis of labour market dynamics, in particular of flows in the labour market and how they interact and affect the evolution of unemployment rates and participation rates, the two main indicators of labour market performance. Our analysis has two special features. First, apart from the two labour market states – employment and unemployment – we consider a third state – out of the labour force. Second, we study net rather than gross flows, where net refers to the balance of flows between any two labour market states. Distinguishing a third state is important because the labour market flows to and from that state are quantitatively important. Focussing on net flows simplifies the complexity of interactions between the flows and allows us to perform a dynamic analysis in a structural vector-autoregression framework. We find that a shock to the net flow from unemployment to employment drives the unemployment rate and the participation rate in opposite directions while a shock to the net flow from not in the labour force to unemployment drives the rates in the same direction.

Suggested Citation

  • Robert Dixon & Guay C. Lim & Jan C. van Ours, 2014. "The Effect of Shocks to Labour Market Flows on Unemployment and Participation Rates," Melbourne Institute Working Paper Series wp2014n13, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2014n13
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    References listed on IDEAS

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    Cited by:

    1. G. C. Lim & Robert Dixon & Jan C. Ours, 2021. "Beyond Okun’s law: output growth and labor market flows," Empirical Economics, Springer, vol. 60(3), pages 1387-1409, March.
    2. Predrag Trpeski & Verica Janeska & Marijana Cvetanoska & Aleksandra Lozanoska, 2017. "Unemployment and a Stock – Flow Model on the Labour Market in the Republic of Macedonia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 41-63.
    3. van Ours, J.C., 2015. "The Great Recession was not so Great," Discussion Paper 2015-006, Tilburg University, Center for Economic Research.
    4. Andrew Evans, 2018. "Okun coefficients and participation coefficients by age and gender," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-22, December.
    5. van Ours, Jan C., 2015. "The Great Recession was not so Great," CEPR Discussion Papers 10376, C.E.P.R. Discussion Papers.
    6. van Ours, Jan C., 2015. "The Great Recession was not so great," Labour Economics, Elsevier, vol. 34(C), pages 1-12.
    7. Häberli, Christian, 2016. "An International Regulatory Framework for National Employment Policies," Papers 963, World Trade Institute.
    8. Kamil Galuscak & Jan Solc & Pawel Strzelecki, 2018. "Labour Market Flows over the Business Cycle: The Role of the Participation Margin," Working Papers 2018/17, Czech National Bank.

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    More about this item

    Keywords

    Net labour market flows; unemployment rate; participation rate;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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