DP1702 Business Cycles and Compositional Variation in US Unemployment

Author(s): Jaap H Abbring , Gerard J van den Berg , Jan C van Ours

Publication Date: October 1997

Keyword(s): Business Cycle , Sorting Ranking , Unemployment Composition , Unemployment Duration

JEL(s): C41 , E32 , J64

Programme Areas: Human Resources

Link to this Page: www.cepr.org/pubs/dps/DP1702.asp

In the past decades several features of US unemployment dynamics have been investigated empirically. The original focus of research was on the duration of unemployment. In later studies the cyclicality of incidence and duration, compositional effects and duration dependence of the exit rate out of unemployment have been investigated. Unlike the partial approach of previous studies this paper takes all elements of unemployment dynamics simultaneously into account. We find that cyclical fluctuations in unemployment are driven by variations in the incidence, individual exit probabilities and the composition of the inflow into unemployment. We also find negative duration dependence of the unemployment exit rate, which can be attributed to employers ranking workers according to the length of their unemployment spell.