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Unemployment, Participation and Worker Flows over the Life Cycle

  • Benjamin Villena-Roldan

    (Universidad de Chile, Center for Applied Economics)

  • Alexandre Janiak

    (Universidad de Chile, Center for Applied Economics)

  • Sekyu Choi

    (Universitat Autonoma de Barcelona)

We estimate and report life cycle transition probabilities between employment, unemployment and inactivity for male workers using Current Population Survey monthly files. We assess the relative importance of each probability in explaining the life cycle profiles of participation and unemployment rates using a novel decomposition method. A key robust finding is that most differences in participation and unemployment over the life cycle can be attributed to the probability of leaving employment and the probability of transiting from inactivity to unemployment, while transitions from unemployment to employment (the job finding probability) play secondary roles. We then show that a simple life cycle extension of a three-state labor search model with leisure shocks can qualitatively replicate the empirical unemployment and participation life cycle profiles, without introducing age or worker heterogeneity in market abilities. We conclude that models that seek to explain life cycle work patterns should not ignore transitions to and from inactivity.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 602.

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Date of creation: 2011
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Handle: RePEc:red:sed011:602
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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  1. Pietro Garibaldi & Etienne Wasmer, 2005. "Equilibrium Search Unemployment, Endogenous Participation, And Labor Market Flows," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 851-882, 06.
  2. Gary Hansen & Selahattin Imrohoroglu, 2008. "Consumption over the Life Cycle: The Role of Annuities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 566-583, July.
  3. Veracierto, Marcelo, 2008. "On the cyclical behavior of employment, unemployment and labor force participation," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1143-1157, September.
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  5. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Aysegul Sahin, 2008. "Aggregate Implications of Indivisible Labor, Incomplete Markets, and Labor Market Frictions," NBER Working Papers 13871, National Bureau of Economic Research, Inc.
  6. Fernando Alvarez & Marcelo Veracierto, 2000. "Labor-Market Policies in an Equilibrium Search Model," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 265-316 National Bureau of Economic Research, Inc.
  7. Morten O. Ravn, 2008. "The Consumption-Tightness Puzzle," NBER Chapters, in: NBER International Seminar on Macroeconomics 2006, pages 9-63 National Bureau of Economic Research, Inc.
  8. Thomas J. Sargent & Lars Ljungqvist & Sagiri Kitao, 2009. "A Life Cycle Model of Trans-Atlantic Employment Experiences," 2009 Meeting Papers 914, Society for Economic Dynamics.
  9. 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.
  10. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  11. Arnaud Ch�ron & Jean-Olivier Hairault & Fran�ois Langot, 2013. "Life-Cycle Equilibrium Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 31(4), pages 843 - 882.
  12. Alexandre Janiak & Paulo Santos Monteiro, 2010. "Labor force heterogeneity: implications for the relation between aggregate volatility and government size," Documentos de Trabajo 272, Centro de Economía Aplicada, Universidad de Chile.
  13. Pries, Michael & Rogerson, Richard, 2009. "Search frictions and labor market participation," European Economic Review, Elsevier, vol. 53(5), pages 568-587, July.
  14. 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.
  15. 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.
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