Ruhr Economic Papers

Ruhr Economic Papers #305

Decomposing the Ins and Outs of Cyclical Unemployment

by Ronald Bachmann and Mathias Sinning

RWI, 12/2011, 30 S./p., 8 Euro, ISBN 978-3-86788-350-4



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.

JEL-Classification: J63, J64, J21, E24

Keywords: Gross worker flows; unemployment duration; decomposition analysis; Blinder-Oaxaca

Published as:

Bachmann, R. and M. Sinning (2016), Decomposing the Ins and Outs of Cyclical Unemployment. Oxford Bulletin of Economics and Statistics 78 (6): 853-876. DOI: 10.1111/obes.12133