The ins and outs of unemployment over different time horizons

Ajax Moreira, Miguel Foguel and Carlos Henrique Corseuil ()
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Ajax Moreira: IPEA
Carlos Henrique Corseuil: IPEA

Empirical Economics, 2021, vol. 60, issue 5, No 16, 2533-2556

Abstract: Abstract We devise a decomposition for the level of the unemployment rate that allows the assessment of the contributions of the various flow rates in the labor market over different time horizons. In particular, the decomposition allows one to recover the contributions of the flow rates in the long-run projection of the unemployment rate as in the steady-state decomposition widely used in the literature. We apply our methodology for data from the USA and Brazil. The results show that the relative contribution of the flows to the variance of the cyclical component of unemployment is sensitive to the time horizon of the projected unemployment rate. The changes in relative contributions of some flows are so prominent that their rankings change over time. These qualitative changes are more significant for Brazil than for the USA. Our results also evince that the steady-state approximation of the unemployment rate performs relatively worse in the former country. We take these findings as supporting evidence for considering the use of projected unemployment rate over shorter time horizons as an alternative to the steady-state approximation.

Keywords: Unemployment; Labor market flows; Cyclical fluctuations; Decomposition (search for similar items in EconPapers)
JEL-codes: E24 J64 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00181-020-01845-z

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