New Data on Worker Flows During Business Cycles

By C. Hoyt Bleakley, Ann E. Ferris, and Jeffrey C. Fuhrer

July 27, 1999

The most obvious economic cost of recessions is that workers become involuntarily unemployed. During the average business cycle contraction, total employment declines by about 1.5 percent, the unemployment rate rises by 2.7 percentage points, and it takes almost two years before employment recovers its pre-recession level. Both fiscal policy and monetary policy are concerned with these business cycle deviations of employment from its "full-employment" or "equilibrium" level.

The aggregate statistics on employment and unemployment mask economically important information about the composition of the unemployed and their experience over time. This paper examines the differential experience during a business cycle of those who quit their jobs, those who are on layoff subject to future recall, and those who suffer permanent job separations. Using a new data set that assembles the flows of workers into and out of unemployment, employment, and not-in-the-labor-force, the authors examine the behavior over time of workers who enter and leave the ranks of the unemployed, grouped by the reason for unemployment. They find that a closer look at the flows into and out of unemployment that lie beneath changes in total unemployment improves forecasts of inflation and unemployment, relative to standard models.Data files
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Figure 1	Gross Worker Flows into and out of Employment
Figure 2	Average Monthly Values of Gross Stocks and Flows for Employment, Unemployment, and Not in the Labor Force
Figure 3	Flows out of Employment, by Reason for Unemployment
Figure 4	Escape Rates from Unemployment, by Reason Unemployed
Figure 5	Worker Flows in Manufacturing and Nonmanufacturing Sectors
Figure 6	Worker Flows by Industry
Figure 7	Escape Rates from Unemployment into Employment, by Sector of Previous Employment
Figure 8	Worker and Job Flows in Manufacturing
Figure 9	Comparison of "Permanent" Worker Flows and Job Flows in Manufacturing
Figure 10	Duration of Completed Unemployment Spells
Figure 11	Explaining High Unemployment Duration in the 1990s
Figure 12	Ratio of U-->N Flows to U-->E Flows
Figure 13	Recent Unemployment Forecasts
Figure 14	Alternative Labor Market Indicators of Inflation