Anatomy of Unemployment Risk

This paper investigates how job separation and job finding probabilities shape the unemployment risk across ages and working group characteristics. Improving on current methods, I estimate duration models for employment and unemployment separately. I then use the duration analysis results to derive the individual age profiles of conditional transitions in and out of unemployment as well as the unconditional unemployment risk profile over the whole working life. This approach allows adapting the decomposition of changes in unemployment risk, which has so far only been used to study aggregate unemployment dynamics (Shimer, 2007 and 2012; Fujita and Ramey, 2009). I find that differences in job separation rates across ages underlie the observed age differences in unemployment risk. When differences between working groups are under consideration, the job findings are just as important as the job separation probability.