IZA DP No. 2455: U.S. Labor Market Dynamics Revisited
The picture of U.S. labor market dynamics is opaque. Empirical studies of U.S. gross worker flows have yielded contradictory findings, and it is not easy to get a sense of the key moments of the data. Debates have emerged regarding the implications of these flows for the understanding of the business cycle. The early view was that worker separations from jobs are the more dominant cyclical phenomenon (relative to the hirings of workers), and that therefore it is important to analyze the causes for separations or job destruction. Later, this view was challenged by the claim that separations are roughly constant over the cycle, and that the key to the understanding of the business cycle is in the cyclical behavior of the job finding rate. This paper aims at clarifying the picture, trying to determine what facts can be established, what are their implications for the business cycle, and what remains to be further investigated. The main findings are: (i) There is considerable cyclicality and volatility of both accessions and separations. Hence, both are important for the understanding the business cycle. The paper delineates the key business cycle facts of the labor market. (ii) The major remaining problems, in need of further study, are the disparities in the measurement of flows between employment and the pool of workers out of the labor force, disagreements on the relative volatility of job finding and separation rates across data sets, and the fact that the fit of the gross flows data with net employment growth data differs across studies and is not high.