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Decomposing the Ins and Outs of Cyclical Unemployment

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  • Bachmann, Ronald

    () (RWI)

  • Sinning, Mathias

    () (Australian National University)

Abstract

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.

Suggested Citation

  • Bachmann, Ronald & Sinning, Mathias, 2012. "Decomposing the Ins and Outs of Cyclical Unemployment," IZA Discussion Papers 6362, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6362
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ronald Bachmann & Peggy Bechara & Anica Kramer & Sylvi Rzepka, 2015. "Labour market dynamics and worker heterogeneity during the Great Recession – Evidence from Europe," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-29, December.
    2. Sam Schulhofer-Wohl & Robert Hall, 2014. "Measuring Matching Efficiency with Heterogeneous Jobseekers," 2014 Meeting Papers 368, Society for Economic Dynamics.
    3. Hie Ahn & James Hamilton, 2016. "Heterogeneity and Unemployment Dynamics," Working Papers id:11130, eSocialSciences.
    4. Pizzinelli, Carlo & Speigner, Bradley, 2017. "Matching efficiency and labour market heterogeneity in the United Kingdom," Bank of England working papers 667, Bank of England.
    5. Elish Kelly & Seamus McGuinness & Philip J O’connell & David Haugh & Alberto GonzÁlez Pandiella, 2014. "Transitions In and Out of Unemployment among Young People in the Irish Recession," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 56(4), pages 616-634, December.
    6. Sara Rica & Yolanda F. Rebollo-Sanz, 2017. "Gender Differentials in Unemployment Ins and Outs during the Great Recession in Spain," De Economist, Springer, pages 67-99.
    7. Hall, Robert E. & Schulhofer-Wohl, Sam, 2015. "Measuring Job-Finding Rates and Matching Efficiency with Heterogeneous Jobseekers," Working Papers 721, Federal Reserve Bank of Minneapolis.

    More about this item

    Keywords

    unemployment duration; gross worker flows; decomposition analysis; Blinder-Oaxaca;

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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