Unemployment, Participation and Worker Flows Over the Life-Cycle

Abstract

We estimate and report life-cycle transition probabilities between employment, unemployment and inactivity for male and female workers using Current Population Survey monthly files. We assess the relative importance of each probability in explaining the life-cycle profiles of participation and unemployment rates using a novel decomposition method. A key robust finding is that most differences in participation and unemployment over the life-cycle can be attributed to the probability of leaving employment and the probability of transiting from inactivity to unemployment, while transitions from unemployment to employment (the job finding probability) play secondary roles. We conclude that search models that seek to explain life-cycle work patterns should not ignore transitions to and from inactivity.

Labor Market Uncertainty and Portfolio Choice Puzzles

“…While Davis and Willen (2000) find a positive correlation, Campbell, Cocco, Gomes, and Maenhout (2001) find a positive correlation only for specific population groups. Note: Panel A plots the age profile of the probability of becoming unemployed from Choi, Janiak, and Villena-Roldan (2014). Panel B plots the probability of switching occupation by age from Kambourov and Manovskii (2008). which is reflected in the variance-covariance matrix V 0 j+1|j in Equation (12).…”

Labor-Market Uncertainty and Portfolio Choice Puzzles

“…The age-dependent unemployment risk is based on the estimates by Choi, Janiak, and Villena-Roldan (2014). The average productivity over the life-cycle is taken from Hansen (1993), which is estimated from the CPS.…”

Enhancing Economic Flexibility

“…The two states are employment and joblessness, which comprises unemployment and economic inactivity. Choi et al (2015) underline the importance of taking into account transitions into and from inactivity in order to understand employment dynamics. The second goal is to allow linking changes in transition probabilities to changes in employment, as a way of relating the findings from this study with ongoing complementary OECD work that reevaluates the impact of structural policies on employment in the short (OECD, 2016) and long term (Gal and Theising, 2015).…”