DP2490 Unemployment Dynamics, Duration and Equilibrium: Evidence from Britain

Author(s): Simon Burgess, Hélène Turon
Publication Date: June 2000
Keyword(s): Non-Linear Dynamics, Persistence, Unemployment Duration, Unemployment Dynamics, Unemployment Flows
JEL(s): E24, E32, J64
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2490

This Paper challenges the consensus on the nature of unemployment dynamics in Britain. We show that the argument that changes in unemployment arise mostly from changes in the duration of unemployment (rather than in the event of becoming unemployed) is flawed. In fact, while shocks to the outflow do have a part to play up to the late 1970s, the huge changes in unemployment over the last two decades have been mostly driven by inflow shocks. Our model also provides a new explanation of aggregate unemployment persistence based on externalities at a market level rather than individual-level persistence.