Net flows in the U.S. labor market, 1990–2010, Monthly Labor Review Online, February 2011

Net flows in the U.S. labor market, 1990–2010

Robert Dixon, John Freebairn, and Guay C. Lim

Robert Dixon is a professor of economics, and John Freebairn occupies the Ritchie Chair in Economics, Department of Economics, Faculty of Business and Economics, University of Melbourne, Melbourne, Victoria, Australia; Guay C. Lim is a professorial research fellow, Melbourne Institute of Applied Economic and Social Research, Faculty of Business and Economics, University of Melbourne, Melbourne, Victoria, Australia. E-mail: r.dixon@unimelb.edu.au

Except in the most recent recession, net flows were from unemployment to employment (even in previous recessions), from employment to not in the labor force (even in booms), and from not in the labor force to unemployment; changes in the unemployment rate across subperiods varied chiefly with the size of the net flow between employment and unemployment.

This article presents a simple framework for the systematic investigation of the relationship between net (and gross) flows among different labor market states and movements in the unemployment rate. The framework is then used to investigate the behavior of net flows of persons among employment, unemployment, and departure from the labor force (not in the labor force) in the United States over the 1990–2010 period. Understanding this behavior increases economists’ understanding of the progression of unemployment over the business cycle and aids in identifying the characteristics that make the most recent recession different from previous ones.¹ The article contributes to the literature on gross flows² and flow probabilities among various labor market states by investigating net flows between states over long periods.

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Notes

1 Although the framework presented is used here to study changes in the unemployment rate, it can easily be applied, with minor modifications, to study changes in other ratios, such as the employment rate and the labor participation rate.

2 Studies of gross flows include Anthony J. Barkume and Francis W. Horvath, “Using gross flows to explore movements in the labor force,” Monthly Labor Review, April 1995, pp. 28–35; Hoyt Bleakley, Ann E. Ferris, and Jeffrey C. Fuhrer, “New Data on Worker Flows During Business Cycles,” New England Economic Review, July–August 1999, pp. 49–76; Randy Ilg, “Analyzing CPS data using gross flows,” Monthly Labor Review, September 2005, pp. 10–18; Zhi Boon, Charles M. Carson, R. Jason Faberman, and Randy E. Ilg, “Studying the labor market using BLS labor dynamics data,” Monthly Labor Review, February 2008, pp. 3–16; and Harley J. Frazis and Randy E. Ilg, “Trends in labor force flows during recent recessions,” Monthly Labor Review, April 2009, pp. 3–18.

Labor Force Statistics from the Current Population Survey

Trends in labor force flows during recent recessions—Apr. 2009.
Studying the labor market using BLS labor dynamics data.—Feb. 2008.
Analyzing CPS data using gross flows.—Sept. 2005.
Estimating gross flows consistent with stocks in the CPS.—Sept. 2005.

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