Working Paper: CEPR ID: DP2490
Authors: Simon Burgess; Hélène Turon
Abstract: This Paper challenges the consensus on the nature of unemployment dynamics in Britain. We show that the argument that changes in unemployment arise mostly from changes in the duration of unemployment (rather than in the event of becoming unemployed) is flawed. In fact, while shocks to the outflow do have a part to play up to the late 1970s, the huge changes in unemployment over the last two decades have been mostly driven by inflow shocks. Our model also provides a new explanation of aggregate unemployment persistence based on externalities at a market level rather than individual-level persistence.
Keywords: unemployment dynamics; unemployment duration; unemployment flows; nonlinear dynamics; persistence
JEL Codes: E24; E32; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inflow rate shocks (E50) | unemployment dynamics (J64) |
| outflow rate shocks (F41) | unemployment dynamics (J64) |
| unemployment rate (J64) | outflow rate (F21) |
| unemployment rate (J64) | inflow rate (F21) |
| unemployment (J64) | duration (C41) |
| inflow shocks (F32) | duration (C41) |
| large adverse shocks (F69) | slower declines in unemployment rates (J64) |
| market-level externalities (D62) | persistence in unemployment (J64) |