The Ins and Outs of Unemployment: The Ins Win

Abstract

This paper develops a framework for analyzing unemployment in terms of variations in the nt.imber and distribution of people becoming unemployed and in individual probabilities of leaving unemployment. Contrary to the emphasis on exit probabilities in the recent macroeconomics literature, we present empirical evidence in support of the proposition that changes in the size and distribution of the inflow Into unemployment are the primary determinant of the unemployment rate. Instead of falling at the beginning of a recession, the outflow rate rises (with a lag) in response to the increased inflows which drive the recession. In contrast to normal unemployment, cyclical unemployment is concentrated in groups with low normal exit probabilities; so the observed procyclical variation in the average exit probability may largely he explained by predictable distributional effects. To understand changes in the unemployment rate, should we concentrate on the factors that determine inflows into unemployment or outflows from it? Or, are both flow concepts statistical ephemera without any substantial use? This paper attempts to answer those questions and does so in a surprising way: The main proximate determinant of changes in the unemployment rate is variations in the level and distribution of inflows into unemployment. Since the probability of leaving unemployment is primarily determined by the characteristics of those becoming unemployed and is little affected by the business cycle, outflows from unemployment and hence the actual changes in the unemployment rate are primarily determined by the inflows. Instead, we contend that increases in the unemployment rate primarily reflect more people passing through that state, not each individual spending an 'For monthly observations, we have from definitions iU -wwhere y is the growth rate of the labor force. Since ru is negligible in magnitude relative to 4r-w, we have that the cumulative change in u over a quarter will Indeed equal 3 times the average values of -w over the quarter. Measurement of these variables is discussed below. In our (1985) paper we developed data which showed that the average probability of leaving unemployment does fall during recessions. In this paper, we extend our heterogeneity hypothesis which relates these changes in average probability to the much larger representation of slow searchers in cyclical as opposed to normal unemployment. We demonstrate in this paper that taking into account these distributional effects on average probabilities tends to strengthen the result that it is the level and distribution of the inflows that dominates movements in unemployment.A useful analogy which clarifies our viewpoint is to think of the number of people traveling by air at a given moment. At major holidays, this number rises both because more people are making trips and their trips cover longer distances on average. While there may be some increase in the time required to make a certain trip, this is secondary to the number and type of trips as a deter...

The ins and outs of German unemployment: a transatlantic perspective

“…The starting point of our analysis is the unemployment accounting identity (Darby et al, 1986). Unemployment fluctuations are driven by changes in two different channels unemployment inflows (job separation) and unemployment outflows (job find ing).…”

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

“…However, this small measured difference in the importance of the U I flow, twenty-five vs nineteen percent, could disguise a larger actual difference in responses to the cycle. If we accept that the labour market attachment of unemployed women is generally lower, and if the procyclical U I hazard rate is largely explained by composition effects on the pool of those unemployed, as hypothesised by Darby et al (1986) and demonstrated in , then, we would have expected the importance of the male flow to be greater through this composition channel alone. Differences in the relative importance of flows into unemployment are also greater.…”

A munkanélküliségi rátát befolyásoló pro- és kontraciklikus változók vizsgálata SVAR-modellel

“…A beáramlási arány ciklikusságának, illetve annak munkanélküliségi rátára gyakorolt hatásának empirikus vizsgálatával először Darby-Haltiwanger-Plant [1986] foglalkoztak, akik arra a kérdésre keresték a választ, hogy a kontraciklikus munkanélküliségi rátát a munkanélküli státusba be-vagy kiáramlók ciklikussága vezérli-e. Kutatási kérdésük mögött az a tény állt, hogy a korabeli makroökonómiai elméleti modellek a munkanélküliségi ráta kontraciklikusságát kizárólagosan a kiáramlási arány ciklikusságának tulajdonították, míg a beáramlási arány 1 kapcsán aciklikusságot feltételeztek. Darby-Haltiwanger-Plant [1986] azt találták az Egyesült Államok munkaerőpiaci adatain végzett vizsgálatuk során, hogy a munkanélkü-liség ciklikussága majdnem teljes egészében a munkanélkülivé válók (beáramlási) arányának ciklikusságához köthető.…”

“…Darby-Haltiwanger-Plant [1986] azt találták az Egyesült Államok munkaerőpiaci adatain végzett vizsgálatuk során, hogy a munkanélkü-liség ciklikussága majdnem teljes egészében a munkanélkülivé válók (beáramlási) arányának ciklikusságához köthető. Az említett empirikus eredményektől függetle-nül a 2000-es évek elején jellemzően továbbra is olyan munkaerőpiaci elméleti modellek születtek, melyeket azon egyszerűsítő feltételezés mellett alakítottak ki, Statisztikai Szemle, 96. évfolyam 8-9. szám 841-861. oldal hogy a beáramlási arány aciklikusnak tekinthető.…”