Unemployment Insurance, Wage Dynamics and Inequality Over the Life Cycle

32 Pages Posted: 28 Apr 2013

See all articles by Paul Bingley

Paul Bingley

Aarhus University - National Centre for Register-Based Research

Lorenzo Cappellari

Catholic University of the Sacred Heart of Milan; University of Essex - Institute for Social and Economic Research (ISER); Institute for the Study of Labor (IZA)

Niels Westergaard-Nielsen

Copenhagen Business School; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2013

Abstract

We estimate life-cycle transition probabilities between employment, unemployment and inactivity for U.S. workers. We assess the importance of each worker flow to account for participation and unemployment rates over the life-cycle. We find that inactivity exit and entry matter, but the empirically relevant margins defy conventional wisdom. High youth unemployment is due to high employment exit probabilities to unemployment, but mostly to inactivity. Low labor force entry probabilities substantially account for low participation and unemployment among old workers. Our results show that labor search models that do not consider inactivity miss on the empirically relevant flows.

Suggested Citation

Bingley, Paul and Cappellari, Lorenzo and Westergaard-Nielsen, Niels, Unemployment Insurance, Wage Dynamics and Inequality Over the Life Cycle (May 2013). The Economic Journal, Vol. 123, Issue 568, pp. 341-372, 2013, Available at SSRN: https://ssrn.com/abstract=2257133 or http://dx.doi.org/10.1111/ecoj.12027

Paul Bingley

Aarhus University - National Centre for Register-Based Research ( email )

8000 Ã…rhus C, 8210
Denmark

Lorenzo Cappellari

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Institute for the Study of Labor (IZA)

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

Niels Westergaard-Nielsen

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

IZA Institute of Labor Economics

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

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