The importance of frequency in estimating labour market transition rates

Abstract

Labour market transition rates are typically estimated using survey data, which are mainly carried out at monthly or quarterly frequency. I argue that rates from surveys at different frequencies are not comparable, even if corrected for time aggregation. I estimate labour market transition rates using monthly and quarterly frequency CPS data. I apply a time-aggregation correction to make them comparable. I find notable differences in terms of levels and volatilities. While the continuous time-aggregation correction does not alter the unemployment decomposition using the monthly survey, it does so when using the quarterly survey. Jel codes: E24; J60

Informal Work Along the Business Cycle: Evidence from Argentina

“…The correction applies to semi-annual worker flows computed using surveys prior to 2003. We then use Gomes (2015)'s methodology. Gomes (2015) notices that labor market transition rates can be estimated from surveys with various frequencies (whether monthly in US data or quarterly in French, UK or Spain).…”

“…We then use Gomes (2015)'s methodology. Gomes (2015) notices that labor market transition rates can be estimated from surveys with various frequencies (whether monthly in US data or quarterly in French, UK or Spain). He proposes a methodology to make them comparable.…”

“…We then solve a Markovian model of quarterly labor market transitions such that the dynamic system replicates the observed semi-annual worker flows. We use Gomes (2015)'s correction to get quarterly transitions from semi-annual transitions. We now have all transitions with the same time dimension, that is quarterly.…”

“…Using piecewise interpolation techniques, one can merge the two samples to get an unique continuous sample of quarterly transitions rates. One novelty of the present paper lies in the use of Gomes (2015) methodology to circumvent the discontinuity problem from the survey. By doing so, we provide quarterly time-series of quarter-to-quarter worker transitions for Argentina from 1996Q3 through 2017Q3.…”

Gender and the business cycle: An analysis of labour markets in the US and UK

“…By applying the time aggregation bias correction we should theoretically be accounting for this difference. But as noted by Gomes (2015), who applies the correction to US transitions from the CPS at both monthly and quarterly frequencies, the effect on cyclical properties of the estimated flows can differ depending on the frequency of the data. This is because the correction assumes the flow hazard rate is constant over time for all workers.…”