In the Wrong Place at the Wrong Time: The Extent of Frictional and Structural Unemployment

Jonathan S. Leonard

NBER Working Paper No. 1979
Issued in June 1988

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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Published: Unemployment and the Structural LAbor Markets, (eds) K. Lang and J. Leornard, 1987, Oxford: Basil Blackwell.

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