Job-to-Job Transitions and Unemployment Dynamics

Abstract

This paper studies the role of job-to-job transitions in driving unemployment dynamics. Three stylized facts emerge from applying and extending a well-known stocks-flows based decomposition to the UK and US labour markets for the past two decades. First, the variations in the job-to-job probability contribute approximately a third and a fifth of the dynamics of the unemployment rate in the UK and US, respectively. Second, these results are not driven by compositional shifts in the pool of job leavers and are robust to controlling for time aggregation. Finally, conventional analyses that disregards job-to-job transitions will significantly underestimate the role of job finding in contributing to labour market dynamics.