Decomposing the Ins and Outs of Cyclical Unemployment

By Ronald Bachmann, Mathias Sinning. Social Science Research Network, 2012

339 citations recorded by the source corpus.

This paper analyzes the contribution of the socioeconomic and demographic composition of the pool of employed and unemployed individuals to the dynamics of the labor market in different phases of the business cycle. Using individual level data from the Current Population Survey (CPS), we decompose differences in employment status transition rates between economic upswings and downturns into composition effects and behavioral effects. We find that overall composition effects play a minor role for the cyclicality of the unemployment outflow rate, although the contribution of the duration of unemployment is significant. In contrast, composition effects dampen the cyclicality of the unemployment inflow rate considerably. We further observe that the initially positive contribution of composition effects to a higher unemployment outflow rate turns negative over the course of the recession.

Subfields: Economics and Econometrics, General Health Professions

View Paper: https://www.semanticscholar.org/paper/e74f78b3ac3f4871013729b54a2d4b9fc37ee2b3

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Citations in the corpus

A Plucking Model of Business Cycles (2019, neutral): “Such forward-looking wage moderation is present in wage setting models (e.g., Kim and Ruge-Murcia, 2009; Elsby, 2009; Benigno and Ricci, 2011).”
Heterogeneous Labor Market Impacts of the COVID-19 Pandemic (2020, result): “This outcome contrasts with the pattern typically observed during recessions, in which a collapse in hiring is usually the dominant driver of increased unemployment rates (see Elsby, Michaels, and Solon 2009; Fujita and Ramey 2009; Shimer 2012).”
The recent decline in employment dynamics (2013, methodology): “The CPS gross flows have been widely used to understand unemployment dynamics across the business cycle – see, for example, Elsby, Michaels, and Solon (2009), Barnichon and Nekarda (2012), and Shimer (2012).”
Labour Market Flows: Facts from the United Kingdom (2012, methodology): “8 This is a discrete time version of the decomposition Elsby, Michaels, and Solon (2009)”
High Discounts and High Unemployment (2017, neutral): “Bachmann and Sinning (2012),Estevão and Smith (2013)”
Tipping Points in Macroeconomic Agent-Based Models (2013, background): “Minsky, Stabilizing an Unstable Economy, McGraw-Hill, New York (2008) [48] M.”
On the importance of the participation margin for labor market fluctuations (2013, background): “Empirical research that has emphasized the roles of job loss and job finding over that of the participation margin is cited in Elsby, Michaels, and Solon (2009).”