Countercyclical Unemployment Outflows and Labour Reallocation

Gareth David Leeves ()

Australian Economic Papers, 1999, vol. 38, issue 3, pages 290-309

Abstract: The distinction between job and excess worker reallocation in a model proposed by Burda and Wyplosz (1994) offers a possible explanation for the observed empirical regularity of countercyclical gross flows of workers from unemployment to employment. Previous descriptions of gross flow cyclical adjustment have not adequately accounted for the role of excess worker reallocation in labour market adjustment. This paper investigates the characteristics of Australian gross flow relationships between unemployment and employment, using a structural VAR methodology, for evidence of patterns consistent with the dynamic behaviour of labour reallocation proposed by the Burda and Wyplosz model. The results provide support for a description of labour market adjustment in the last Australian recession as a combination of job and excess worker reallocation effects, as implied by the model, and highlight the role played by excess worker reallocation in generating countercyclical UE flows. The paper also considers the interrelationship between labour reallocation and long-term unemployment and the flow adjustment patterns of males and females. Copyright 1999 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

Date: 1999
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