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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
Date of revision:
Handle: RePEc:iza:izadps:dp6362
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  1. Michael W. Elsby & Ryan Michaels & Gary Solon, 2007. "The Ins and Outs of Cyclical Unemployment," NBER Working Papers 12853, National Bureau of Economic Research, Inc.
  2. Ronald Bachmann & Peggy David, 2009. "The Importance of Two-Sided Heterogeneity for the Cyclicality of Labour Market Dynamics," SFB 649 Discussion Papers SFB649DP2009-017, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  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. Baker, Michael, 1992. "Unemployment Duration: Compositional Effects and Cyclical Variability," American Economic Review, American Economic Association, vol. 82(1), pages 313-21, March.
  5. Ronald L. Oaxaca & Michael R. Ransom, 1999. "Identification in Detailed Wage Decompositions," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 154-157, February.
  6. Boldin, Michael D, 1994. "Dating Turning Points in the Business Cycle," The Journal of Business, University of Chicago Press, vol. 67(1), pages 97-131, January.
  7. Mark Bils & Yongsung Chang & Sun-Bin Kim, 2008. "Comparative Advantage in Cyclical Unemployment," RCER Working Papers 540, University of Rochester - Center for Economic Research (RCER).
  8. Daniel Aaronson & Bhashkar Mazumder & Shani Schechter, 2010. "What is behind the rise in long-term unemployment?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 28-51.
  9. William C. Horrace & Ronald L. Oaxaca, 2001. "Inter-Industry Wage Differentials and the Gender Wage Gap: An Identification Problem," ILR Review, Cornell University, ILR School, vol. 54(3), pages 611-618, April.
  10. Machado, José & Portugal, Pedro & Guimarães, Juliana, 2006. "U.S. Unemployment Duration: Has Long Become Longer or Short Become Shorter?," IZA Discussion Papers 2174, Institute for the Study of Labor (IZA).
  11. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  12. Javier Gardeazabal & Arantza Ugidos, 2004. "More on Identification in Detailed Wage Decompositions," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 1034-1036, November.
  13. F. L. Jones, 1983. "On Decomposing the Wage Gap: A Critical Comment on Blinder's Method," Journal of Human Resources, University of Wisconsin Press, vol. 18(1), pages 126-130.
  14. Katharine G. Abraham & Robert Shimer, 2001. "Changes in Unemployment Duration and Labor Force Attachment," NBER Working Papers 8513, National Bureau of Economic Research, Inc.
  15. Giuseppe Moscarini & Fabien Postel-Vinay, 2012. "The Contribution of Large and Small Employers to Job Creation in Times of High and Low Unemployment," American Economic Review, American Economic Association, vol. 102(6), pages 2509-39, October.
  16. Nicole M. Fortin, 2008. "The Gender Wage Gap among Young Adults in the United States: The Importance of Money versus People," Journal of Human Resources, University of Wisconsin Press, vol. 43(4).
  17. Yashiv, Eran, 2006. "U.S. Labor Market Dynamics Revisited," IZA Discussion Papers 2455, Institute for the Study of Labor (IZA).
  18. Reimers, Cordelia W, 1983. "Labor Market Discrimination against Hispanic and Black Men," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 570-79, November.
  19. David Neumark, 1988. "Employers' Discriminatory Behavior and the Estimation of Wage Discrimination," Journal of Human Resources, University of Wisconsin Press, vol. 23(3), pages 279-295.
  20. Elder, Todd E. & Goddeeris, John H. & Haider, Steven J., 2010. "Unexplained gaps and Oaxaca-Blinder decompositions," Labour Economics, Elsevier, vol. 17(1), pages 284-290, January.
  21. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  22. Michael R. Darby & John C. Haltiwanger & Mark W. Plant, 1986. "The Ins and Outs of Unemployment: The Ins Win," UCLA Economics Working Papers 411, UCLA Department of Economics.
  23. Toshihiko Mukoyama & Aysegul Sahin, 2004. "Why Did the Average Duration of Unemployment Become So Much Longer?," Working Papers 04002, Concordia University, Department of Economics.
  24. Ben Jann, 2008. "The Blinder–Oaxaca decomposition for linear regression models," Stata Journal, StataCorp LP, vol. 8(4), pages 453-479, December.
  25. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
  26. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  27. Yun, Myeong-Su, 2003. "A Simple Solution to the Identification Problem in Detailed Wage Decompositions," IZA Discussion Papers 836, Institute for the Study of Labor (IZA).
  28. Michael Pries, 2008. "Worker Heterogeneity and Labor Market Volatility in Matching Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 664-678, July.
  29. Eran Yashiv, 2008. "U.S. Labor Market Dynamics Revisited," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 779-806, 03.
  30. F. L. Jones & Jonathan Kelley, 1984. "Decomposing Differences between Groups," Sociological Methods & Research, , vol. 12(3), pages 323-343, February.
  31. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
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