Cyclical Employment and Unemployment Flows in the U.S.

Abstract

Unemployment in the U.S. has risen dramatically since the start of the recession in December 2007, going from about 6.8 million people in May 2007 to over 14.6 million in June 2010. This is often spoken of as "losing 7.8 million jobs," but this is a terribly misleading view of the issue. The reality is that flows of people and jobs each month are huge -- it would be more correct to say that 4-6 million jobs were lost each month, with a comparable (just slightly lower) number found each month. This paper examines some of the data regularities in the monthly gross flows published by the Bureau of Labor Statistics. The methodology is to analyze the transition rates and implied steady-state levels of employment and unemployment. This is an approach that, while not commonly used, does provide valuable insights. For example, declines in employment have been largely due to decreased probability of finding a job, with little net impact from changes in the probability of losing a job. Furthermore, in spite of a fall in the u-to-e transition contributing significantly to falling employment, the flow from unemployment to employment actually increased. As another example, changes in the probability of moving between unemployment and not in the labor force (NLF) look like an "anti-discouraged worker" effect -- during the recession people are more likely to move from NLF to unemployment and less likely to move from unemployment to NLF.

Keywords: Job flows, employment fluctuations, labor force, employment dynamics, worker flows

JEL Classification: E32, E24, J63, J64, C82