Decomposing the Ins and Outs of Cyclical Unemployment

31 Pages Posted: 25 Feb 2012

See all articles by Ronald Bachmann

Ronald Bachmann

Rhine-Westphalia Institute for Economic Research (RWI-Essen)

Mathias Sinning

Australian National University (ANU) - Crawford School of Public Policy

Abstract

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.

Keywords: gross worker flows, unemployment duration, decomposition analysis, Blinder-Oaxaca

JEL Classification: J63, J64, J21, E24

Suggested Citation

Bachmann, Ronald and Sinning, Mathias, Decomposing the Ins and Outs of Cyclical Unemployment. IZA Discussion Paper No. 6362. Available at SSRN: https://ssrn.com/abstract=2010977

Ronald Bachmann (Contact Author)

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany

Mathias Sinning

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

HOME PAGE: http://www.mathiassinning.com

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