Unemployment Dynamics in the OECD

Abstract

We provide a set of comparable estimates for the rates of inflow to and outflow from unemployment using publicly available data for fourteen OECD economies. Using a novel decomposition that allows for deviations of unemployment from its flow steady state, we find that fluctuations in both inflow and outflow rates contribute substantially to unemployment variation within countries. Anglo-Saxon economies exhibit approximately a 15:85 inflow-outflow split to unemployment variation, while continental European and Nordic countries display closer to a 45:55 split. In all economies, increases in inflows lead increases in unemployment, whereas outflows lag a ramp-up in unemployment.

Labour market flows: Facts from the United Kingdom

“…This conclusion is in line with the results of Elsby, Hobijn, and Sahin (2008). They estimate the job-finding and separation rates for OECD countries, based on publicly available data on unemployment by duration spell.…”

The Aggregate Effects of the Hartz Reforms in Germany

“…26 We prefer to use gross worker flows, as duration dependence in the total outflow rate may bias the conclusions drawn from unemployment duration data. Elsby et al (2011) are unable to reject the null hypothesis of no duration dependence at the 99% significance level, but they reject the null hypothesis at the 95% significance level. Figure (2) illustrates that, in our sample, the U E transition rate exhibits substantial duration dependence.…”

“…In order to account for the sluggish labor market adjustments in West-Germany, we decompose the ins and outs of unemployment using the dynamic factor approach developed by Elsby et al (2011) and Smith (2011). The starting point of this decomposition method is the law of motion of the actual unemployment rate, u t :u…”

“…25 In Germany, on the other hand, the picture remains disturbingly opaque. Jung & Kuhn (2011), based on a steady state decomposition of IAB gross worker flows, find that the inflow rate is more important than the ouflow rate; Elsby et al (2011), based on a non-steady state decomposition of annual OECD unemployment duration data, 26 observe approximately a 50:50 split; and Nordmeier (2012), based on a non-steady state decomposition of IAB gross worker flows, argues that the outflow rate is more important than the inflow rate. To our knowledge, the latter work is the only study that has attempted to conduct a non-steady state decomposition using German gross worker flows so far.…”

“…In order to decompose the fluctuations in the West-German unemployment rate, we use the non-steady state approach developed by Elsby et al (2011) and Smith (2011). Compared to the steady state approach pioneered by Fujita & Ramey (2009) and Shimer (2012) -which is nested as a special case -the non-steady state method is able to capture the sluggishness of the West-German labor market more appropriately.…”