Job-to-Job Transitions, Job Finding and the Ins of Unemployment

Abstract

Increases in the ins of unemployment during recessions are the result of two major forces: increased layoffs, or a fall in job finding of potential job-to-job transitions. This paper quantifies the contribution of these two channels using the flows approach to the labour market in the UK and US over a period of two decades. The results show that fluctuations in job finding of potential job-to-job transitions are at least as important as layoffs, but that layoffs were particularly important in the Great Recession in US. The results suggest that around three-quarters of unemployment dynamics are explained by fluctuations in job finding. I show that these findings are not driven by compositional changes in observable characteristics, and are robust to an adjustment for time-aggregation. I provide new evidence, consistent with these results, regarding changes in search incidence before match dissolution in the UK.