Unemployment Fluctuations Research Articles

Automation, Bargaining Power, and Labor Market Fluctuations

We argue that the threat of automation weakens workers’ bargaining power in wage negotiations, dampening wage adjustments and amplifying unemployment fluctuations. We make this argument based on a business cycle model with labor market search frictions, generalized to incorporate automation decisions. In the model, procyclical automation threats create endogenous real wage rigidity that amplifies labor market fluctuations. The automation mechanism is consistent with empirical evidence. It is also quantitatively important for explaining the large volatilities of unemployment and vacancies relative to that of real wages, a puzzling observation through the lens of standard business cycle models. (JEL E13, E24, E32, J31, J63, J64)

The post-COVID inflation episode

This study examined the recent inflation episode in the US using an estimated NK-DSGE model with endogenous unemployment fluctuations. We find that the US price inflation accelerated due to a sudden wage increase during the COVID-19 lockdown, the 2021 expansionary monetary policy, and price-push shocks in the quarters of a global surge in energy costs. The disinflation path predicts that further indexing prices or wages to lagged inflation will lead to higher wage inflation and slower price disinflation. Moreover, severely tightening the Fed’s monetary policy will only slightly reduce inflation but increase unemployment.

Business cycles in Colombia: stylized facts

The purpose of this article is to examine the economic cycles in Colombia and to empirically corroborate the fulfillment of nine stylized facts documented in the specialized international literature. For this purpose, the retropolated series 1975-2013 and the series 2005:1-2022:4 of the National Administrative Department of Statistics (DANE) were analyzed using the Hodrick-Prescott filter. Thus, the occurrence of four economic cycles is recorded between 1975 and 2013 with an average duration of 9.3 years with an expansionary phase of 5.0 years and a contractionary phase of 5.3 years. Similarly, between 2005:1 and 2022:4 there were three cycles with an average duration of 21.7 quarters, with an expansionary phase of 14.7 quarters and a contractionary phase of 7.0 quarters. It should also be said that the cyclical fluctuations of employment and unemployment are closely related to effective demand and domestic demand in accordance with Keynesian theory; for example, the positive correlation between the real GDP cycle and the implicit GDP deflator cycle suggests that the cycles were not due to shifts in the aggregate production function as the dominant theory stresses, but to shifts in the aggregate demand function.

Policy lessons from Okun’s law for African countries

ABSTRACT This article explores the intricate relationship between economic growth and unemployment across multiple African countries, with a focus on estimating the Okun’s coefficient. Data from the International Labour Office (ILO) and the World Bank’s databases for 39 African nations were utilised. Two distinct methodological approaches, first differences and the Hodrick-Prescott (HP) filter, were employed to assess result robustness. Findings reveal that in most African countries, the link between GDP growth and unemployment is weak or non-existent, unlike advanced economies. This divergence underscores unique economic structures and labour dynamics in African nations, necessitating tailored approaches to address unemployment. The study also investigates factors contributing to Okun’s coefficient variability in Africa, emphasising structural, demographic, and economic influences. Demographic trends, domestic market competition, and the rule of law are identified as key determinants. Consequently, policymakers are urged to prioritise measures targeting these factors to enhance job creation and economic stability. Additionally, the study highlights the role of growth volatility, particularly in Morocco, emphasising the need for policies to stabilise economic growth and mitigate unemployment fluctuations.

Two ENR cost indexes react differently to labour conditions

ABSTRACT Building Cost Index (BCI), unlike Construction Cost Index (CCI), had not been thoroughly explored in the existing body of literature. Both BCI and the CCI are two similar time series, with the only difference lying in the labour components used in their calculations. This study utilizes impulse-response functions to observe the different reactions of the BCI and CCI concerning labour conditions. The results indicate that the BCI consistently displays heightened sensitivity to fluctuations in labour supply and unemployment, whereas the CCI remains insensitive to such labour-related fluctuations.

The relationship between the rate on unemployment and occupational injuries: A case of Russia

This study aims to reveal how growth or decline in the rate of unemployment determines occupational injuries in Russia. Based on the regional statistics from 2009 to 2021 with the help of linear panel models we estimate the relationship between the rate of unemployment and fatal or non-fatal occupational injuries rates. The results show that when the economy is decreasing employees or employers prefer to underreport workplace accidents. This effect is especially strong in conditions of rising unemployment due to the release of workers, layoffs or liquidation of enterprises. At the same time, the fluctuations of unemployment do not change the fatal accidents; that is, injuries per se do not have a cyclical behavior. Thus, though there is a decreasing trend in the rate of occupational injuries in Russia, there is a problem of underreporting of accidents as we observe in high-income economies.

A Congestion Theory of Unemployment Fluctuations

We propose a theory of unemployment fluctuations in which new hires and incumbent workers are imperfect substitutes. Hence, attempts to hire away the unemployed during recessions diminish the marginal product of new hires, discouraging job creation. This single feature achieves a tenfold increase in the volatility of hiring in an otherwise standard search model, produces a realistic Beveridge curve despite countercyclical separations, and explains 30–40 percent of US unemployment fluctuations. Additionally, it explains the excess procyclicality of new hires’ wages, the cyclical labor wedge, countercyclical earnings losses from job displacement, and the limited steady-state effects of unemployment insurance. (JEL E24, E32, J22, J23, J31, J63)

Worker flows by gender and industry in Japan

After the late 2000s, there were substantial fluctuations in unemployment during the Global Financial Crisis (GFC), Abenomics, and COVID-19 crisis, and their impact was uneven by gender and industry. This study examines the property of worker flows in Japan by focusing on gender and industry perspectives using monthly data from the Labour Force Survey. During the COVID-19 crisis, the transition probability from employment to inactivity rose sharply compared to the period of the GFC, mainly driven by women in the service sectors. The contribution of inflows to the dynamics of unemployment was on the rise for both men and women until around 2018, and the decreased unemployment rate during Abenomics can be accounted for by the decline in separation rates.

Employment Protection in Dual Labor Markets: Any Amplification of Macroeconomic Shocks?

Abstract This paper studies the effects of labor market duality in terms of employment legislation protection (EPL) on labor market volatilities. Modeling contractual heterogeneity through a gap in EPL of temporary and permanent workers (weakly protected temporary/highly protected permanent contracts), I simulate both supply and demand shocks in a New Keynesian model with unemployment. I find that unemployment fluctuations follow an inverted U-shape over the magnitude of the EPL gap: small EPL gaps amplify, while large EPL gaps dampen the reaction of unemployment. In a subsequent empirical analysis, I find that the model’s predictions are consistent with panel data for a large set of OECD countries. Uncovering the non-linear course of unemployment volatility helps reconcile previous divergent research results.

Industry Volatility and Employment Extreme Risk Transmission: Evidence from China

China’s socio-economic growth path aims to achieve full and sustainable employment, which requires an in-depth understanding of the linkages between employment and different industrial sectors within the economic system. The objective of this study is to examine the heterogeneous transmission effects of industry fluctuations on the distribution of employment, with special attention to the transmission effects of industry fluctuations on employment under extreme conditions. The research methodology of this paper is to systematically examine the risk spillover effects between industry sectors and employment distribution using the quantile risk spillover model. The results show that industry volatility significantly affects employment volatility in China. The impact of industry volatility is stronger under extreme conditions, both more adverse and favorable than that of under normative conditions. Among labor-intensive industries, the employment impact of skilled labor-intensive and integrated labor-intensive industries is relatively small compared to that of the relatively large impact of manual labor-intensive industries. The results suggest that traditional indicators of the spillover effect, such as the mean-based indicator, cannot accurately capture the source and real effect of risk transmission, leading to unemployment fluctuations, underscoring the need to focus on the heterogeneity of the distribution of employment fluctuations. The findings also present the evolution of the risk transmission structure of employment in China, which provides implications for policymaking on full and sustainable employment.

High Discounts and Low Fundamental Surplus: An Equivalence Result for Unemployment Fluctuations

We establish an observational equivalence between unemployment fluctuations of the Diamond-Mortensen-Pissarides search economy augmented with time varying risk premia and an otherwise identical economy without risk premia but with a time varying value of leisure. This equivalence holds for general risk premia processes and allows us to view the effects of different models of risk premia as operating through a single channel—one that alters the value of leisure. We derive simple expressions for semielasticities of labor market tightness with respect to productivity and risk premium shocks. We show wages can be used to detect misspecification in the discount rate process used in hiring decisions. This paper was accepted by Lukas Schmid, finance. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.03712 .

Implementation of the X-Means Algorithm on Unemployment Data in West Java

The unemployment rate is a serious issue in many countries, including Indonesia, with impacts that encompass psychological pressure, declining living standards, reduced national income, and diminished workforce quality. High unemployment rates can lead to poverty, resource wastage, and have implications for a country's economic growth. Additionally, inadequate workforce quality is a determining factor in unemployment rates. The objective of this study is to classify unemployment data, specifically in West Java Province, using the X-Means algorithm based on educational levels and districts/cities, in order to examine the fluctuations in unemployment. The research findings indicate fluctuations in the number of unemployed individuals in West Java Province from 2011 to 2022. The low unemployment rate in West Java Province experienced a 66.7% increase in 2014-2015, remained stable in 2017-2019, while the high unemployment rate decreased by 80% in 2014-2015, remained stable in 2017-2019, but increased by 20% in 2020-2022. Furthermore, Bogor Regency consistently recorded the highest unemployment rate in each cluster, with a total of 135,000 unemployed individuals in Bogor Regency in 2017-2019, while the education level with the highest unemployment rate was junior high school graduates

Labour reallocation and unemployment fluctuations: A tale of two tails

AbstractThis paper examines the sectoral shifts hypothesis for the US regional labour market using a quantile panel framework. We use a monthly panel dataset that spans over 1990–2016 for the 48 US states and employ a dynamic quantile panel data regression approach to investigate the asymmetric nature of the relationship between sectoral labour reallocation and unemployment fluctuations. The empirical evidence suggests that the impact of the employment dispersion index is relatively small and insignificant for lower levels of unemployment but becomes positive and highly significant for higher rates. Our findings bear out the asymmetry of reallocation disturbances for the US labour market.

Financial markets and unemployment

We study the importance of financial markets for (un)employment fluctuations in a model with matching frictions where firms borrow under limited enforcement. Borrowing affects employment through a ‘debt bargaining channel’: higher debt improves the bargaining position of employers with workers and increases the incentive to hire. We estimate the model structurally and find that the debt bargaining channel accounts for 26 percent of unemployment fluctuations. We find empirical support for the channel at the micro level using firm level data from Compustat.

Unemployment Fluctuations in Urban Labour Market in India

Unemployment Fluctuations in Urban Labour Market in India

How credible are Okun coefficients? The gap version of Okun’s law for G7 economies

The paper draws attention to the fact that findings that follow from estimation of Okun’s law are extremely sensitive to methodological choices. The argument rests in a case study oriented upon G7 countries for a period 1991/Q1–2021/Q4 and accounts for a possible asymmetry in the output–unemployment relationship. First, business and unemployment fluctuations are estimated by six purely statistical approaches that arise by casting the Hodrick–Prescott filter, the Hamilton filter and the unobserved component model into a univariate or bivariate framework. Second, the gap version of Okun’s law is modelled by means of an auto-regressive distributed lag model or its nonlinear threshold counterpart according as asymmetry is allowed or not. The results indicate huge heterogeneity in Okun coefficients for every country caused by differences even in the basal methodological aspects accounted for in the case study. The diversity of results demonstrates that initial modelling choices may provide economic policy-makers with conflicting insights and advice. This issue follows merely from the absence of general standards that might decide which particular result is more credible.

The effect of non-technological news shocks on unemployment fluctuations: The case of Europe

The effect of non-technological news shocks on unemployment fluctuations: The case of Europe

Internet Appendix for "High Discounts and Low Fundamental Surplus: An Equivalence Result for Unemployment Fluctuations"

Internet Appendix for "High Discounts and Low Fundamental Surplus: An Equivalence Result for Unemployment Fluctuations"

The Effect of Monetary Policy on Consumption Inequality: An Analysis of Transmission Channels through TANK Models

AbstractWhat transmission channels drive the effect of monetary policy on consumption inequality? This paper investigates this question with tractable Two‐Agent New Keynesian models with search‐and‐matching frictions and wage rigidities. I make a distinction between credit‐constrained households and unconstrained households and find that an expansionary monetary policy shock decreases consumption inequality between those two households through three channels: (i) the income composition channel, through fluctuations in labor and profit income; (ii) the savings redistribution channel, through fluctuations in real interest rate; and (iii) the earnings heterogeneity channel, through fluctuations in unemployment. The results are in line with the empirical evidence.

Reassessing classification errors in the analysis of labor market dynamics

Classification error–misreporting of true labor force statuses by survey respondents–can impact our broader understanding of labor markets in two critical dimensions: (i) measurement of labor market stocks (e.g., the unemployment rate); and (ii) the flows between these states (e.g., sources of unemployment fluctuations). This paper makes three contributions to the literature. First, this paper provides a single unifying framework for the classification error of labor market states, which can be used to analyze both stocks and flows. Second, I compare the proposed model implications with other classification-error correction models and show that the proposed latent variable approach generates similar labor market dynamics as re-interview-survey-based methods. Third, I show that correcting for classification errors with this alternative approach supports but moderates the results of previous studies in terms of the measurement of the unemployment rate and sources of unemployment fluctuations. It (i) mutes the magnitude of an underestimate of the U.S. official unemployment rate and (ii) points to a more (less) prominent role of the job separation margin (the labor force participation margin) in explaining the unemployment fluctuations.