Unemployment durations and the pattern of duration dependence over the business cycle of British males

This paper examines the relationship between the business cycle and individuals’ duration in unemployment. I use multi-spell unemployment duration data of British males and monthly series of regional vacancies over unemployment, referred to as labour market tightness, to control for the business cycle. In line with most previous studies I find that the observed negative duration dependence on an aggregate level is explained by both sorting and strong negative individual duration dependence, and that the individual hazard of leaving unemployment increases with labour market tightness. The new empirical findings emerge from the interactions between individual duration dependence and the business cycle. Individual heterogeneity, and in particular the variation over the business cycle in the composition of the newly unemployed, explains most of the systematic variation over the business cycle in duration dependence on an aggregate level. Individual duration dependence does not vary over the business cycle in a way that would lend support to the predictions concerning this of the matching model of Lockwood (Rev Econ Stud 58:733–753, 1991) or the ranking model of Blanchard and Diamond (Rev Econ Stud 61:417–434, 1994).     

Crime during the business cycle: urban–rural differences

Despite the abundant literature on how crime evolves over the business cycle, no consensus has arisen whether crime increases or decreases during recessions. The literature provides both positive and negative associations between the crime rate and the unemployment rate, a commonly used proxy for the business cycle. This study revisits this issue and uses county-level data from 1990 to 2013. It allows for differences as to how unemployment relates to both property crime and violent crime depending on the size of the counties. We find evidence of a positive association between unemployment and property crime that strengthens with county size. The results show the same pattern for violent crime but are statistically weaker. Our findings suggest that the positive association between property crime and unemployment that others have found is largely driven by more populous areas.     

Asymmetry and Duration Dependence in Australian GDP and Unemployment

The periodic structure of business cycles suggests that significant asymmetries are present over different phases of the cycle. This paper uses markov regime-switching models with fixed and duration dependent trasition probabilities to directly model expansions, contractions and durations in Australian GDP growth and unemployment growth. Evidence is found of significant asymmetry in growth rates across expansions and contractions for both series. GDP contractions exhibit duration dependence implying that as output recessions age the likelihood of switching into an expansion phase increases. Unemployment growth does not exhibit duration dependence in either phase. Evidence is also presented that non-linearities in unemployment growth are well explained by the asymmetries in the GDP growth cycle. The analysis suggests that recessions are periods of rapid and intense job destruction, that Australian unemployment tends to ratchet up in recessionary periods and, in contrast to US and UK studies, that shocks to Australian unemployment growth are more persistent in recessions than expansions.     

Labor market dynamics over the business cycle: evidence from Markov switching models

This paper explores the evolution of the U.S. labor market across the business cycle and specifically the relationship between the unemployment rate and the average duration of unemployment. Labor market recoveries have long been thought of as lagging recoveries in broad economic activity. In particular, the unemployment rate peaks several months after official business cycle troughs and the average duration of unemployment lags further behind. Using estimates from Markov switching models of the unemployment rate, average duration of unemployment, jobless claims, and the exhaustion rate of regular unemployment insurance, this paper dates contractionary and expansionary phases of various aspects of the labor market and their relationship to the official phases of the business cycle. Evidence from these models suggests that inflows into unemployment recover almost contemporaneously with broad economic activity, while outflows recover almost a year after the end of official recessions. The differential timing in the recoveries of unemployment inflows and outflows, which is not a characteristic of most macro models of the labor market, accounts for the observed pattern between the unemployment rate and average duration of unemployment. Finally, when comparing the phases of the labor market to periods where Congress extends unemployment insurance benefits, it appears that policymakers target periods where the job finding rate is low, rather than periods where the stock of unemployed workers is high.     

Key Features of Australian Business Cycles

This paper identifies and describes the key features of Australian business cycles during the period 1959–2002. In particular, we identify the chronologies in Australia's classical cycle (expansions and contractions in the level of output) and growth cycle (periods of above-trend and below-trend rates of economic growth). We find that while there are large asymmetries in the duration and amplitude of phases in Australia's classical cycle, on both measures the Australian growth cycle is much more symmetric. Further, our results indicate that over the sample period Australian (filtered) output and prices have moved in a counter-cyclical fashion, suggesting a dominance of shocks to aggregate supply affecting the Australian economy.     

Real wage cyclicality in the Eurozone before and during the Great Recession: Evidence from micro data

We study the response of real wages to the business cycle in eight major Eurozone countries before and during the Great Recession. Average real wages are found to be acyclical, but this reflects, in large part, the effect of changes in the composition of the labour force related to unemployment variations over the cycle. Using longitudinal micro data from the ECHP and SILC panels to control for composition effects, we estimate the elasticities of real wage growth to unemployment increases between −0.6 and −1 over the period 1994–2011. Composition effects have been particularly large since 2008, and they explain most of the stagnation or increase in the average wage observed in some countries from 2008 to 2011. In contrast, at a constant labour force composition in terms of education and experience, the figures indicate a significant decrease in average wages during the downturn, particularly in countries most affected by the crisis. Overall, there is no evidence of downward nominal wage rigidity during the Great Recession in most countries in our sample.     

Episodes of unemployment reduction in rich,middle-income and transition economies

This paper studies the incidence and determinants of episodes of drastic unemployment reduction, defined as swift, substantial, and sustained declines in unemployment. We identify 43 episodes over a period of nearly 3 decades in 94 rich, middle-income and transition countries. Unemployment reductions often coincide with an acceleration of growth and an improvement in macroeconomic conditions. Episodes are much more prevalent in countries with higher levels of unemployment and, given unemployment, are more likely in countries with better regulation. An efficient legal system that enforces contracts expeditiously is particularly important for reducing unemployment. The results imply that while employment is largely related to the business cycle, better regulation reduces likelihood of high unemployment and facilitates a more rapid recovery in the event unemployment builds up.     

Labour market transitions and unemployment duration: Evidence from Bulgarian and Polish micro-data1

The segmentation of the labour market is one of the most striking characteristics of the transition process in Central and Eastern European countries. Not only do the young, unskilled workers and women face a high risk of unemployment, but joblessness also varies significantly geographically. This paper sheds some light on labour market segmentation in transition countries by analysing individual records of individuals registered at the labour offices of two Polish regions (Warsaw and Ciechanov and two Bulgarian regions (Sofia and Botevgrad) over the initial three to four years of the transition to a market economy. The empirical results confirm the existence of highly selective firing and hiring processes in the Polish and Bulgarian labour markets. Overall, unskilled or poorly educated workers have the highest probability of becoming unemployed and remaining without a job for a long period of time. We also analysed the determinants of unemployment duration across regions and over time using a piece-wise constant hazard model with multiple destinations, i.e. employment and exit from the labour force. The results suggest that the unemployed with a high education and previous experience in the private sector have a higher probability of getting a new job, especially in the more dynamic labour markets, while those without previous work experience tend to stay unemployed for a longer period of time and often leave the labour market. The econometric results also suggest that the reforms of the unemployment benefit systems have produced important effects on unemployment flows.     

Unemployment durations and local labour market conditions

ABSTRACT

Unemployment durations vary across local authority districts in the UK. We explore the extent to which this variation is explained by differences in local labour demand as opposed to composition, business cycle and regional effects. We use seventeen waves of the British Household Panel Survey to identify the determinants of the duration of unemployment spells. Once we adjust for individual-level, business cycle and regional controls, we do not find evidence that living in a local authority district with relatively high unemployment is associated with longer spells of unemployment. This indicates that differences in labour demand operate at larger geographic scales, such as between large regions. Our findings have implications for the design of policies to help high unemployment districts.     

The anatomy of unemployment dynamics

This paper examines the relation between individual unemployment durations and incidence (inflow size) on the one hand and the time-varying macroeconomic conditions in the economy on the other. We develop a model for the analysis of aggregate unemployment incidence and duration data and estimate this model on quarterly French data over the period 1982-1994 stratified by sex. We find upward trends in both incidence and durations. The former is relatively important for females, the latter for males. Male incidence and durations are countercyclical, with only a minor role for cohort effects on durations. In contrast, female cohorts entering at the top of the cycle have relatively short unemployment spells and the female incidence is, if anything, procyclical. There is strong seasonal variation, in particular in the incidence. Finally, we find relatively small non-monotonic individual duration dependence in the first six quarters of unemployment. Unobserved heterogeneity explains the observed negative duration dependence at these durations. We provide some evidence that negative individual duration dependence, and not heterogeneity, is important at higher durations.     

Credit and business cycles’ relationship: evidence from Spain

This study provides evidence on the interaction between business and credit cycles in Spain during the period 1970–2014. The paper works on three analyses: the cycle turning points are identified; the main features of credit and business cycles are documented; and in both cycles the causal relationship is assessed. We find differences in the features of the business and credit cycle phases, which lead to a scant degree of synchronization over time. The lack of synchronization might be a sign that the cyclic interaction could be non-contemporaneous. Our results reveal that there is causation. A significant lagged relationship between business and credit cycles is found; specifically, fluctuations of the business cycle lead fluctuations of the credit to non-financial corporations and a lag exists with respect to the fluctuations of the credit to households. We also examine episodes of credit boom and credit crunch. In the period 1970–2014, Spanish credit booms did not involve deeper business cycle contractions and credit crunches were not associated with deeper and longer business cycle contractions. These differences are related with the great importance of the real estate sector in Spain.     

On the Time‐Varying Relationship between Unemployment and Output: What shapes it?

This paper revisits, by means of both time series and panel data analyses, the empirical regularity popularized by Okun's (Proc Bus Econ Sect, 98‐103, 1962) seminal paper focusing on a sample of 20 advanced economies between 1978 and 2015. Not only do we provide arguably better estimates of the Okun's Law coefficient (OLC) (using the gap version) by employing a new filtering technique, but more importantly, we also contest the hypothesis that the OLC has been static over time. By estimating country‐specific time‐varying Okun coefficient models, we confirm that the unemployment‐output responsiveness has been changing over time. The dispersion between countries’ OLCs has been determined by some (structural) characteristics. The starting level of unemployment and the phase of the business cycle increase the estimated OLCs, while informality and certain labour and product market policies lower them. Our evidence sustains the fact that aggregate demand policies aiming at increasing output growth can equally contribute to the recovery in labour markets.     

The nonlinear time series properties of unemployment rates: some further evidence

The time series properties of unemployment rates for Germany, Japan, the UK and the US are re-examined. Evidence of nonlinear structure in the residuals of the most parsimonious linear ARMA models is reported for all countries except Japan. Modelling this nonlinearity using SETAR models suggests strong asymmetry in unemployment dynamics and the presence of a possible limit cycle for the UK. However, residual diagnostics for these models indicate remaining structure. Alternative TAR models conditioned on past growth rates of industrial production yield substantial reductions in residual variance over both linear and SETAR counterparts, iid residuals in all cases other than the US, and threshold values at or very near zero, clearly identifying the asymmetric behaviour of unemployment during expansionary and contractionary phases of the business cycle.     

Structural unempolyment in Australia

This paper examines whether structural unemployment increased in Australia over the last two decades. A simple regression model has been considered for testing the hypothesis of increase in unemployment of several segment of the labour force over time. Six dimensions of the labour force, namely age, sex, region, duration of unemployment, occupation and industry, have been taken into account. Analysis of the regression results reveals that the structural unemployment problem is substantial with respect to age, sex, duration of unemployment occupation and industry. Regarding region the evidence for structural symptom is not very strong.     

Quarterly US unemployment: Cycles,seasons and asymmetries

This paper documents three stylized facts for the quarterly unemployment rate in the United States. Firstly, unemployment is asymmetric over the business cycle, i.e. it rises sharply in recessions and it falls slowly in expansions. Secondly, its seasonal fluctuations are not constant across the two business cycle stages in the sense that there is less seasonality in recession periods. Thirdly, the effect of shocks to the unemployment rate in expansions seem transitory, while this effect is permanent in recessions. Some implications of these stylized facts for empirical macroeconomics and seasonal adjustment are discussed.     

The Nature of Unemployment among Young Men in Urban Ethiopia

This paper investigates the nature of unemployment among young men in urban Ethiopia and finds that it is concentrated among relatively well‐educated first‐time job seekers who aspire to a public sector job and spend on average close to four years in unemployment. This is consistent with a segmented labor market model where youngsters queue in unemployment for a good job, as confirmed by an empirical test of the theoretical prediction. We observe a negative (causal) relationship between household welfare and both the incidence and duration of unemployment, indicating that unemployment is concentrated among the relatively worse off urban households, which from a national perspective represent the middle classes, and find suggestive evidence that part of this effect is due to malnutrition during childhood. Job search through social networks is only effective after one has become unemployed, suggesting that networks provide insurance only after exposure to the risk.     

Unobserved Heterogeneity,Exit Rates,and Re‐Employment Wages

Exit rates from unemployment and re‐employment wages decline over a period of unemployment, after controlling for worker observable characteristics. We study the role of unobserved heterogeneity in an economy with asymmetric information and directed search. We show that the unique equilibrium is separating and that skilled workers have more job opportunities and higher wages. The composition of the unemployed varies with the duration of unemployment, so average exit rates and wages fall with time. The separating equilibrium relies on performance‐related pay schemes and the ability of firms to commit to renting an input that is complementary to worker skills.     

Construction of an economic index to measure the causes of economic insecurity

This paper is an updated study on the causes of economic insecurity in the United States. The authors have constructed an aggregate composite index that measures objectively the major causes of economic insecurity (CEI) in the United States. The CEI index consists of 11 variables that can cause economic insecurity. The time period under investigation is 1960 through 2001. A rising CEI index indicates that the causes of economic insecurity in the United States have increased in relative importance, which results in an increase in economic insecurity. Conversely, a falling CEI index indicates that the causes of economic insecurity have declined in relative importance, which results in a reduction of economic insecurity. However, despite substantial economic growth in the American economy from 1960 through 2001, the CEI index overall showed little improvement. The major conclusion is that the CEI index was 9 percent higher in 2001 than it was in 1960. This result was due largely to the increase in divorce, violent crime, rising out-of-pocket expenditures for health care, inflation, and unemployment. The results for subperiods are dramatically different, and we think more interesting, than the overall results. During the 1960s, there was a small decline in the CEI index. The 1970s showed a dramatic increase in the CEI index, which reflected both high unemployment rates and inflation rates during this period. The 1980s experienced fluctuating levels in the index but little overall change, and the 1990s experienced a sharp decline in the CEI index due largely to a robust economy. The CEI index has increased more recently, which reflects largely the recent 2001 business recession. The correlation coefficient of the CEI index with the University of Michigan's well-known Index of Consumer Sentiment is ?676. This figure shows that as the CEI index rises, consumer sentiment about the American economy becomes pessimistic and negative.     

Okun’s law revisited: a threshold in regression quantiles approach

This article proposes, for the first time, a threshold in regression quantiles approach to the analysis of Okun’s law. By applying to US data over the 1948Q1–2016Q4 period, we have three major findings. First, a single threshold is detected for both multiple and individual quantiles cases. However, the effect of threshold nonlinearity is only present in the middle to upper quantiles of the conditional unemployment distribution in the individual quantiles case. Second, the first-order autoregressive coefficients of unemployment are significantly larger in the lower-growth regime, indicating that shocks to unemployment appear to be more persistent during recessions. Finally, the Okun’s coefficients are all negative across the recessionary and expansionary regimes, confirming the validity of Okun’s law. Moreover, the Okun’s coefficients are smaller (more negative) in the lower-growth regime, suggesting that the effect of differenced output on differenced unemployment is asymmetric, and is more pronounced in recessions.     

Unemployment burden and its distribution: Theory and evidence from India

We develop a measure of unemployment that takes into account both the duration and intensity of unemployment. This measure satisfies several desirable properties, including distribution sensitivity, which deals with differences among the unemployed. It is particularly suited to developing countries because individuals in these countries display considerable variation in labor force participation, unemployment duration, and unemployment intensity. It can also be decomposed into mean and variance components and contributions to unemployment by various subgroups of the population. We use this measure and data from National Sample Surveys on employment and unemployment to understand unemployment in India during the period 1993 to 2012. We show that unemployment has generally fallen, although the distribution of unemployment has worsened. Moreover, unemployment is driven to a greater extent by higher educated groups; the unemployment among these groups is also fairly substantial. We explain these findings and suggest some policies.