The Cyclicality of Separation and Job Finding Rates

Abstract

This paper uses CPS gross flow data to analyze the business cycle dynamics of separation and job finding rates and to quantify their contributions to overall unemployment variability. Cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them, while the job finding rate is positively correlated with and tends to lag productivity. Contemporaneous fluctuations in the separation rate explain between 40 and 50 percent of fluctuations in unemployment, depending on how the data are detrended. This figure becomes larger when dynamic interactions between the separation and job finding rates are considered.

Decomposing Beveridge Curve Dynamics By Correlated Unobserved Components

“…Second, several authors (e.g. Davis et al ., , Fujita and Ramey, , Kosfeld et al ., , Börsch‐Supan, ) put forward arguments for the cyclicality of matching efficiency implying cyclical shifts of the BC. In line with those authors, we argue that basically all determinants of BC dynamics may vary for both permanent and transitory reasons.…”

“…However, notable arguments in the literature trigger deviations from the traditional BC pattern. Davis, Faberman and Haltiwanger (), Fujita and Ramey (), Börsch‐Supan () and Kosfeld, Dreger and Eckey () theoretically and empirically motivated that shifts of the BC could occur for cyclical reasons. Their focus lies on matching efficiency – the parameter that indicates functionality of the labour market on the one hand but varies with search intensity over the cycle on the other.…”

Decomposing the Ins and Outs of Cyclical Unemployment

“…To analyse transitions from unemployment to employment and from unemployment to non‐participation, we use basic monthly data from the CPS for the time period February 1976–October 2009, which also constitute the basis of the ‘gross flow data’ employed by Fujita and Ramey () and Yashiv (). The data are readily available from the website of the National Bureau of Economic Research (NBER)…”

Dynamics of worker flows and vacancies: evidence from the sign restriction approach

“…The recent literature, such as Shimer (2007), Fujita and Ramey (2009) and Elsby et al (2009), focuses exclusively on the behavior of transition rates without any reference to gross flows. The earlier literature, however, puts more emphasis on gross flows.…”

“…Fujita and Ramey (2009) emphasize that the separation tends to lead the business cycle, whereas the job finding rate trails the cycle. The result here is consistent with their finding.…”