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Decomposing the Ins and Outs of Cyclical Unemployment

  • Bachmann, Ronald

    ()

    (RWI)

  • Sinning, Mathias

    ()

    (Australian National University)

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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6362.

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Length: 31 pages
Date of creation: Feb 2012
Publication status: published in: Oxford Bulletin of Economics and Statistics, 2016, 78 (6), 853-876
Handle: RePEc:iza:izadps:dp6362
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