In the Wrong Place at the Wrong Time: The Extent of Frictional and Structural Unemployment
Jonathan S. Leonard
A major cause of unemployment, distinct from inadequate aggregate demand
and instability of workers, is the instability of jobs themselves. In an
average year about one in every nine jobs disappear and one in every eight is
newly created. This is based on an analysis of year to year employment
changes among the private employers of Wisconsin between 1977 and 1982. This
job loss may account for roughly 2.2 percentage points, or one quarter, of the
average unemployment rate. As much as half of the transitions of workers from
employment to non-employment may be accounted for by the destruction of jobs.
Establishments appear to adjust their employment quickly, largely within
one year. Employment growth rates one year apart are negatively correlated,
and thereafter nearly follow a random walk. Establishments exhibit
considerable heterogeneity in employment growth rates, with some positive
cyclical variations, but little industry effect. Employment shifts across
establishments within an industry are of far greater magnitude than shifts
across industry lines.
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