Heterogeneity and Unemployment Dynamics

Abstract

This paper develops new estimates of flows into and out of unemployment that allow for unobserved heterogeneity across workers as well as direct effects of unemployment duration on unemployment-exit probabilities. Unlike any previous paper in this literature, we develop a complete dynamic statistical model that allows us to measure the contribution of different shocks to the short-run, medium-run, and long-run variance of unemployment as well as to specific historical episodes. We find that changes in the inflows of newly unemployed are the key driver of economic recessions and identify an increase in permanent job loss as the most important factor.

Measuring Labor-Force Participation and the Incidence and Duration of Unemployment

“…2 1 See Ahn and Hamilton (2019). 2 2 Our adjustments are related to those of Rothstein (2011), Elsby et al (2011), Elsby, Hobijn, andŞahin (2015), and Farber and Valletta (2015) who reclassified all U N U as U U U.…”

Measuring Job-Finding Rates and Matching Efficiency with Heterogeneous Job-Seekers

“…Our research deals with only the outflow rate from long-term unemployment. An understanding of the high levels of long-term unemployment following the crisis of 2008 would require a study of inflow rates to unemployment, a subject complementary to the subject of this paper-see Ahn and Hamilton (2016) and Hall and Schulhofer-Wohl (2017).…”

Long‐Term Unemployment and the Great Recession: Evidence from UK Stocks and Flows

“…In spite of this, it remains a surprising result that so little of the change in the distribution of unemployment across { S , M , L } can be accounted for by observables. Ahn and Hamilton () have provided a methodology to potentially address the role of unobserved heterogeneity. They conclude that the employment history characteristics of the unemployed are likely to explain more of the rise in average duration than coarser observable information.…”