1. Unemployment
March 12, 2007
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1.1. Basic (non cyclical) facts
Goals: Understand determination of wage and employment in labor market.
And incorporate in macroeconomic model.
Facts (much progress due to new large panel data sets on firms and workers):
• Large job creation/destruction. Net flows relative to gross.
• Even larger flows of workers.
• Unemployment. Flows/duration.
• Heterogeneity across age groups, skills.
• Heterogeneity across countries: US versus Europe. Within Europe.
• Large continental European countries. Unemployment then low, now
high
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1. Job flows
(For the moment, US-centric. Later, look at other countries
• Job creation, destruction (Davis Haltiwanger Schuh). Define N¯t ≡
(Nt−1 + Nt )/2. Then
�
�
JC ≡ (
ΔNit )/N̄t , JD ≡ (
ΔNit )/N̄t
ΔNit >0
ΔNit <0
• From DH (LRD, plant based): Job creation/destruction rates in manu­
facturing around 5-6% per quarter
• From Faberman, building on LRD up to 1990, BED since 1990. (Figure
3) Job creation/destruction rates in manufacturing around 4-7% per
quarter. Note surprising decline since early 1960s, and more so late
1990s.
• From Faberman (Davis, Figure 2). JC/JD rates around 7-8% per quar­
ter. (Note the decline since 1999. Why? Debate on micro-volatility)
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Figure 3. Quarterly Job Flows in Manufacturing, 1947-2005. p. 33.
Davis, S. J., R. J. Faberman, and J. Haltiwanger. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links." NBER Working Paper No. 12167, April 2006. pp. 1-41. (http://www.nber.org/papers/w12167 )
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Figure 2. Quarterly Job Flows in the Private Sector, 1990-2005. p. 32.
Davis, S. J., R. J. Faberman, and J. Haltiwanger. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links." NBER Working Paper No. 12167, April 2006. pp. 1-41. (http://www.nber.org/papers/w12167)
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2. Workers flows.
Worker flows exceed job flows: workers and firms look for better matches for
existing jobs.
• Total hires and separations for continuing establishments. (JOLTS),
since 2001. Figure 4, from Davis
Hires/separations around 3% per month. Note how close the two gross
flows are.
Quits > layoffs around 1.8%, layoffs around 1.5%
• Worker flows from CPS. Figure 1, from Fallick/Fleischman, 1996-2003.
Note:
(U+E+N) flow to E: 6.2% per month: reconciling with hires numbers?
N to E > U to E. Non-participation? (pool of workers not searching,
but “willing to take a job”: about 6% of LF)
E to E > U to E. On the job search? Relevant pool of workers searching
for jobs?
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Figure 4. Monthly Worker Flow Rates, December 2000 to March 2005. p. 34.
Davis, S. J., R. J. Faberman, and J. Haltiwanger. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links." NBER Working Paper No. 12167, April 2006. pp. 1-41. (http://www.nber.org/papers/w12167)
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Figure 1. Average Monthly Worker Flows, Current Population Survey, 1996-2003. p. 31.
Davis, S. J., R. J. Faberman, and J. Haltiwanger. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links."
NBER Working Paper No. 12167, April 2006. pp. 1-41. (http://www.nber.org/papers/w12167)
cforce
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3. Looking more closely at unemployment. Flows/duration
• Definition of unemployment. Survey-based (not registrations at the un­
employment office. Sometimes (in some countries) quite different.
• Inflows and outflows from CPS. 1976-2005 (Davis, Figure 5). Note:
• Large gross flows/small net flows. Gross: 2-3% per month
• Implied duration. In SS, u rate= duration*flows. Today: 4.5% = 2.5
months times 1.8%. Low duration, large flows.
• Decrease in flows over time, since early 1980s. (Aging, decreasing job
flows)
• A peek at cyclical behavior. Both inflows and outflows up in recessions.
But exit rate (outflows/unemployment) goes down.
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Figure 5. Monthly Unemployment Inflows and Outflows, 1976-2005. p. 35.
Davis, S. J., R. J. Faberman, and J. Haltiwanger. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links." NBER Working Paper No. 12167, April 2006. pp. 1-41. (http://www.nber.org/papers/w12167)
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4. Heterogeneity
• By age. Larger flows for the young. (Table 3, Fallick-Fleischman. Flows
versus stocks, for different age groups)
Also, higher unemployment rates: 2006:4. 10.5% for 16-24, 3.5% for
25-54, 3% for 55+.
• By race: 2006:4. 3.9% for whites, 8.5% for blacks.
• By education level (interacting with race). u rates for less than high
school education: 7% for whites, 15% for blacks. with bachelor degree:
2% for whites, 3.5% for blacks.
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in turnover rates by age.
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Table 3. Contributions to Monthly Employment Transitions by Age.
Fallick-Fleischman.
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Less than a
high school
diploma
High school
graduates,
no college
Some college
or associate
degree
White
Black or African American
Asian
Hispanic or Latino
Bachelor's
degree and
higher
0
2
4
6
8
10
12
14
16
Unemployment rate 2005
The higher the education level, the lower the unemployment rate
NOTE: Data are for persons age 25 and over.
Figure by MIT OCW.
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5. Low frequency movements and heterogeneity across countries
• At high frequency: business cycle movements. A different beast. Focus
on “the natural rate” (rate consistent with constant inflation; equiva­
lently rate without nominal rigidities).
• The increase in the unemployment rate in Europe. (EU15.) Lower than
the US in the 1960s.
• The heterogeneity across European countries. Many have low rates.
The large continental 4 have high rates.
• Measurement error, or hidden in non-participation, disability? Some­
times relevant, but does not change the overall picture. Example of
Spain.
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10
Percent
8
6
4
2
1960
1970
1980
1990
2000
EU15 unemployment rate, since 1960
Nr. 15
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Greece
Spain
France
Germany
Finland
Belgium
Italy
Portugal
Sweden
Netherlands
Denmark
Luxembourg
United Kingdom
Austria
Ireland
0
2
4
Percent
6
8
10
EU15 unemployment rates, 2005
Figure by MIT OCW.
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20
70
15
Unemployment Rate
65
10
60
5
0
1960
Participation rate, percent
Unemployment rate, percent
Participation Rate
55
1970
1980
1990
2000
Unemployment and participation rate in Spain
Figure by MIT OCW.
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Proximate causes behind heterogeneity
• Job flows. Surprisingly similar.
Comparing across countries. Bartelsman Figure 1. (Difficult: different
methodologies, data sets). Still: no obvious difference.
A more detailed comparison. The US versus Portugal. Nearly compara­
ble data sets.
• Unemployment duration:
Over time: France. Unemployment rate from 2 to 10%. Duration from
5 months to 15 months. (so some increase in flow rates as well)
Across countries. (OECD Employment Outlook 2006). Longer duration
than US, even in countries with similar u rates.
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Table 1. Annual Job Creation and Destruction in Manufacturing, Portugal and the United States. p. 189.
Blanchard, O., and P. Portugal. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets." American Economic Review 91, no. 1 (Mar. 2001): 187-207.
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Table 2. Quarterly Job Creation and Destruction in Manufacturing, Portugal and the United States. p. 190.
Blanchard, O., and P. Portugal. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets." American Economic Review 91, no. 1 (Mar. 2001): 187-207.
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16
10
14
8
12
6
10
Unemployment duration (months)
8
Unemployment Rate
4
Average duration
Unemployment rate
12
6
2
1970
1980
1990
2000
2010
Unemployment rate and duration in France
Figure by MIT OCW.
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Table G. Incidence of Long-term Unemployment. p. 267.
OECD Employment Outlook 2006. Statistical Annex. OECD, 2006. pp. 245-276. ISBN: 9264023844. (http://www.oecd.org/dataoecd/53/15/36900060.pdf)
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Other margins, other differences across countries.
• Hours worked. Larger decline in Europe. A debate: Preferences? Taxes?
Union policies and work sharing.
• Participation rates. Often up in Europe, reflecting increased participa­
tion of women.
• Labor share. (Blanchard, Caballero-Hammour). Large increase in con­
tinental Europe in the 1970s, with a larger decrease since.
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2,400
2,200
2,000
1,800
Spain
France
1,600
Germany
West Germany
1,400
Italy
US
1,200
1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Hours worked per person employed per year (1950-2006)
Figure by MIT OCW.
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