THE CYCLICALITY OF SEPARATION AND JOB FINDING RATES*

Abstract

This article uses CPS gross flow data to analyze the business cycle dynamics of separation and job finding rates and quantify their contributions to overall unemployment variability. Cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them, whereas the job finding rate is positively correlated with and tends to lag productivity. Contemporaneous fluctuations in the separation rate explain between 40 and 50% of fluctuations in unemployment, depending on how the data are detrended. This figure becomes larger when dynamic interactions between the separation and job finding rates are considered.