Working Paper: NBER ID: w22451
Authors: Hie Joo Ahn; James D. Hamilton
Abstract: This paper develops new estimates of flows into and out of unemployment that allow for unobserved heterogeneity across workers as well as direct effects of unemployment duration on unemployment-exit probabilities. Unlike any previous paper in this literature, we develop a complete dynamic statistical model that allows us to measure the contribution of different shocks to the short-run, medium-run, and long-run variance of unemployment as well as to specific historical episodes. We find that changes in the inflows of newly unemployed are the key driver of economic recessions and identify an increase in permanent job loss as the most important factor.
Keywords: Unemployment; Heterogeneity; Job Loss; Economic Recessions
JEL Codes: E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inflows of type l workers (J69) | rising unemployment (J64) |
| increase in permanent job loss (J63) | unemployment spikes (J64) |
| longer periods of unemployment (J65) | likelihood of exiting unemployment (J65) |
| inflows of type l workers (J69) | shocks to rising unemployment (J64) |
| unobserved heterogeneity (C21) | differences in unemployment continuation probabilities (J65) |
| genuine duration dependence (C41) | likelihood of exiting unemployment (J65) |