This paper develops a framework for analyzing unemployment in terms of
variations in the nt.imber and distribution of people becoming unemployed and in
individual probabilities of leaving unemployment. Contrary to the emphasis on
exit probabilities in the recent macroeconomics literature, we present
empirical evidence in support of the proposition that changes in the size and
distribution of the inflow Into unemployment are the primary determinant of
the unemployment rate. Instead of falling at the beginning of a recession,
the outflow rate rises (with a lag) in response to the increased inflows which
drive the recession. In contrast to normal unemployment, cyclical unemployment
is concentrated in groups with low normal exit probabilities; so the
observed procyclical variation in the average exit probability may largely he
explained by predictable distributional effects.
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