IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

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

  • 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)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2014n13.

in new window

Length: 29pp
Date of creation: Jun 2014
Date of revision:
Handle: RePEc:iae:iaewps:wp2014n13
Contact details of provider: Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
Phone: +61 3 8344 2100
Fax: +61 3 8344 2111
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Barbara Petrongolo & Christopher A. Pissarides, 2008. "The Ins and Outs of European Unemployment," American Economic Review, American Economic Association, vol. 98(2), pages 256-62, May.
  2. Markus Brückner & Evi Pappa, 2012. "Fiscal Expansions, Unemployment, And Labor Force Participation: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1205-1228, November.
  3. Eran Yashiv, 2007. "U.S. Labor Market Dynamics Revisited," CEP Discussion Papers dp0831, Centre for Economic Performance, LSE.
  4. Gomes, Pedro, 2012. "Labour market flows: Facts from the United Kingdom," Labour Economics, Elsevier, vol. 19(2), pages 165-175.
  5. Jean-Olivier Hairault & François Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and The Job Search of Older Workers: The Case For Delaying Retirement Age," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00517107, HAL.
  6. Tito Boeri & Jan van Ours, 2013. "The Economics of Imperfect Labor Markets: Second Edition," Economics Books, Princeton University Press, edition 1, volume 1, number 10142.
  7. Melvin Stephens, 2002. "Worker Displacement and the Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 20(3), pages 504-537, July.
  8. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  9. Michael W.L. Elsby & Bart Hobijn & Aysegul Sahin, 2011. "Unemployment Dynamics in the OECD," Tinbergen Institute Discussion Papers 11-159/3, Tinbergen Institute.
  10. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  11. Robert Dixon & G.C. Lim, 2002. "Australian gross flows data: the labour force survey and the size of the population represented by the matched sample," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 5(1), pages 1-21, March.
  12. Jean-Olivier Hairault & Francois Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and Older Workers' Employment: The Case for Delaying the Retirement Age," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1034-1076, 09.
  13. 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.
  14. Eran Yashiv, 2007. "U.S. labor market dynamics revisited," LSE Research Online Documents on Economics 19665, London School of Economics and Political Science, LSE Library.
  15. Brian Bell & James Smith, 2002. "On gross worker flows in the United Kingdom: evidence from the Labour Force Survey," Bank of England working papers 160, Bank of England.
  16. Monacelli, Tommaso & Perotti, Roberto & Trigari, Antonella, 2010. "Unemployment fiscal multipliers," Journal of Monetary Economics, Elsevier, vol. 57(5), pages 531-553, July.
  17. Oliver Jean Blanchard & Peter Diamond, 1990. "The Cyclical Behovior of the Gross Flows of U.S. Workers," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 85-156.
  18. Abowd, John M & Zellner, Arnold, 1985. "Estimating Gross Labor-Force Flows," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 254-83, June.
  19. Yashiv, Eran, 2007. "U.S. Labour Market Dynamics Revisited," CEPR Discussion Papers 6481, C.E.P.R. Discussion Papers.
  20. William Foster, 1981. "Gross Flows in the Australian Labour Market A First Look," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 14(4), pages 57-64.
  21. Brian Krogh Graversen & Jan C. van Ours, 2011. "An Activation Program as a Stick to Job Finding," LABOUR, CEIS, vol. 25(2), pages 167-181, 06.
  22. Jeff Borland, 1996. "Labour Market Flows Data for Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 29(2), pages 225-235.
  23. Dixon, R., 2001. "Australian Labour Force Data: How Representative is the 'Population Represented by the Matched Sample'?," Department of Economics - Working Papers Series 772, The University of Melbourne.
  24. Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 11-37, January.
  25. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  26. Jan Boone & Jan Ours, 2009. "Bringing Unemployed Back to Work: Effective Active Labor Market Policies," De Economist, Springer, vol. 157(3), pages 293-313, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iae:iaewps:wp2014n13. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Abbey Treloar)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.