The Role of Worker Flows in the Dynamics and Distribution of UK Unemployment

40 Pages Posted: 20 Jun 2011

See all articles by Michael Elsby

Michael Elsby

School of Economics, University of Edinburgh

Jennifer C. Smith

University of Warwick - Department of Economics

Jonathan Wadsworth

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); IZA Institute of Labor Economics; William Davidson Institute; Royal Holloway College University of London

Abstract

Unemployment varies substantially over time and across subgroups of the labour market. Worker flows among labour market states act as key determinants of this. We examine how the structure of unemployment across groups and its cyclical movements across time are shaped by changes in labour market flows. Using novel estimates of flow transition rates for the UK over the last 35 years, we decompose unemployment variation into parts accounted for by changes in rates of job loss, job finding and flows via non-participation. Close to two-thirds of the volatility of unemployment in the UK over this period can be traced to rises in rates of job loss that accompany recessions. The share of this inflow contribution has been broadly the same in each of the past three recessions. Decreased job-finding rates account for around one-quarter of unemployment cyclicality and the remaining variation can be attributed to flows via non-participation. Digging deeper into the structure of unemployment by gender, age and education, the flow-approach is shown to provide a richer understanding of the unemployment experiences across population subgroups.

Keywords: labour market, unemployment, worker flows

JEL Classification: E24, J6

Suggested Citation

Elsby, Michael and Smith, Jennifer C. and Wadsworth, Jonathan, The Role of Worker Flows in the Dynamics and Distribution of UK Unemployment. IZA Discussion Paper No. 5784, Available at SSRN: https://ssrn.com/abstract=1867053

Michael Elsby (Contact Author)

School of Economics, University of Edinburgh ( email )

31 Buccleuch Place
Edinburgh, EH8 9JT
United Kingdom

Jennifer C. Smith

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 24 7652 3469 (Phone)

Jonathan Wadsworth

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
England

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Royal Holloway College University of London

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Malet Street
London, TW20 0EX
United Kingdom

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