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Labor Force Transitions and Unemployment

Listed author(s):
  • Kim B. Clark
  • Lawrence H. Summers

This paper challenges conventional views of unemployment. Its results suggest that failure to examine closely labor force transitions has led to a misleading picture of unemployment and the way the labor market functions in general. There are four main conclusions. First, labor force transitions are the principal determinant of fluctuations in employment and unemployment. We find that the vast majority of those newly employed come not from unemployment but from outside the labor force. Likewise, most spells of employment end with labor force withdrawal rather than unemployment. Second, traditional estimates of the duration of unemployment and the ease of job finding are seriously flawed by failure to take account of the 45 percent of all unemployment spells which end in labor force withdrawal. Third, re-entrant unemployment is to a large extent the result of job-ending followed by a brief spell outside the labor force. Many re-entrants would almost certainly be better classified as job losers and leavers completing long spells of unemployment rather than as entrants starting a new spell of unemployment. Fourth, it appears that many of those counted as out of the labor force are functionally indistinguishable from the unemployed.

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File URL: http://www.nber.org/papers/w0277.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0277.

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Date of creation: Aug 1978
Handle: RePEc:nbr:nberwo:0277
Note: LS
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  1. Swamy, P A V B, 1970. "Efficient Inference in a Random Coefficient Regression Model," Econometrica, Econometric Society, vol. 38(2), pages 311-323, March.
  2. George L. Perry, 1972. "Unemployment Flows in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 3(2), pages 245-292.
  3. Stephen T. Marston, 1976. "Employment Instability and High Unemployment Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(1), pages 169-210.
  4. Stephen W. Salant, 1977. "Search Theory and Duration Data: A Theory of Sorts," The Quarterly Journal of Economics, Oxford University Press, vol. 91(1), pages 39-57.
  5. Toikka, Richard S, 1976. "A Markovian Model of Labor Market Decisions by Workers," American Economic Review, American Economic Association, vol. 66(5), pages 821-834, December.
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