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Discussion Paper
Conclusion: How Low Will the Unemployment Rate Go?
A major theme of the posts in our labor market series has been that the outflows from unemployment, either into employment or out of the labor force, have been the primary determinant of unemployment rate dynamics in long expansions. The key to the importance of outflows is that within long expansions there have not been adverse shocks that lead to a burst of job losses. To illustrate the power of this mechanism, we presented simulations in a previous post that were based on the movements in the outflow and inflow rates in the previous three expansions. These simulated paths show the ...
Working Paper
Precautionary On-the-Job Search over the Business Cycle
This paper provides new evidence for cyclicality in the job-search effort of employed workers, on-the-job search (OJS) intensity, in the United States using American Time Use Survey and various cyclical indicators. We find that OJS intensity is countercyclical along both the extensive and intensive margins, with the countercyclicality of extensive margin stronger than the other. An increase in the layoffs rate and the deterioration in expectations about future personal financial situation are the primary factors that raise OJS intensity. Our findings suggest that the precautionary motive in ...
Working Paper
Business Cycles and Low-Frequency Fluctuations in the US Unemployment Rate
I show that business cycles can generate most of the low-frequency movements in the unemployment rate. First, I provide evidence that the unemployment rate is stationary, while its flows have unit roots. Then, I model the log unemployment rate as the error correction term of log labor flows in a vector error correction model (VECM) with intercepts that change over the business cycle. Feeding historical expansions and recessions into the VECM generates large low-frequency movements in the unemployment rate. Frequent recessions from the late 1960s to the early 1980s interrupt labor market ...