THE CYCLICALITY OF SEPARATION AND JOB FINDING RATES*

Authors

  • Shigeru Fujita,

    1. Federal Reserve Bank of Philadelphia, U.S.A.; University of California–San Diego, U.S.A.
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  • Garey Ramey

    1. Federal Reserve Bank of Philadelphia, U.S.A.; University of California–San Diego, U.S.A.
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    • 1

      For helpful comments, we thank Björn Brügeman, Francisco Covas, Steve Davis, Wouter Den Haan, Bruce Fallick, Marjorie Flavin, Iourii Manovskii, Ronni Pavan, Vincenzo Quadrini, Valerie Ramey, numerous anonymous referees, and seminar participants at Bank of Canada, Federal Reserve Banks of Philadelphia, Richmond, and San Francisco, USC, and UCSD. We are also grateful to Rob Shimer for making his series readily available at his Web page. Jacob Goldston provided excellent research assistance. The views expressed here are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. Please address correspondence to: Shigeru Fujita, Research Department, Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA 19106, U.S.A. Phone: 215-574-3957. E-mail: Shigeru.Fujita@phil.frb.org.


  • *

    Manuscript received December 2006; revised August 2007.

Abstract

This article uses CPS gross flow data to analyze the business cycle dynamics of separation and job finding rates and quantify their contributions to overall unemployment variability. Cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them, whereas the job finding rate is positively correlated with and tends to lag productivity. Contemporaneous fluctuations in the separation rate explain between 40 and 50% of fluctuations in unemployment, depending on how the data are detrended. This figure becomes larger when dynamic interactions between the separation and job finding rates are considered.

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