The Ins and Outs of Unemployment: The Ins Win

Michael R. Darby, John C. Haltiwanger, Mark W. Plant

NBER Working Paper No. 1997
Issued in August 1986
NBER Program(s):   LS

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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