Reassessing the ins and outs of unemployment

This paper uses readily accessible data to measure the probability that an employed worker becomes unemployed and the probability that an unemployed worker finds a job, the ins and outs of unemployment. The job finding probability is strongly procyclical and the separation probability is nearly acyclical, particularly during the last two decades. Using the underlying microeconomic data, the paper shows that these results are not due to compositional changes in the pool of searching workers, nor are they due to movements of workers in and out of the labor force. These results contradict the conventional wisdom that has guided the development of macroeconomic models of the labor market during the last fifteen years. ∗My title borrows from Darby, Haltiwanger, and Plant (1986). I am grateful for comments from Fernando Alvarez, Gadi Barlevy, Francesco Belviso, Tito Boeri, Robert Hall, David Laibson, and Randall Wright and from seminar participants at the Bank of Italy, Bocconi University, the Chicago Fed, Harvard University, the St. Louis Fed, and the University of Texas-Austin on an earlier version of this paper. This paper is supported by grants from the National Science Foundation and the Sloan Foundation.