Journal Article

New data on worker flows during business cycles

Abstract: The most obvious economic cost of recessions is that workers become involuntarily unemployed. During the average business cycle contraction, total employment declines by about 1.5 percent, the unemployment rate rises by 2.7 percentage points, and it takes almost two years before employment recovers its pre-recession level. Both fiscal policy and monetary policy are concerned with these business cycle deviations of employment from its \"full-employment\" or \"equilibrium\" level. The aggregate statistics on employment and unemployment mask economically important information about the composition of the unemployed and their experience over time. This paper examines the differential experience during a business cycle of those who quit their jobs, those who are on layoff subject to future recall, and those who suffer permanent job separations. Using a new data set that assembles the flows of workers into and out of unemployment, employment, and not-in-the-labor- force, the authors examine the behavior over time of workers who enter and leave the ranks of the unemployed, grouped by the reason for unemployment. They find that a closer look at the flows into and out of unemployment that lie beneath changes in total unemployment improves forecasts of inflation and unemployment, relative to standard models.

Keywords: Business cycles; Employment (Economic theory); Unemployment; Labor supply; Labor mobility; Recessions;

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Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: New England Economic Review

Publication Date: 1999

Issue: Jul

Pages: 49-76