How Tight is the Labour Market? Sources of Changes in the Aggregate Exit Rate from Unemployment across the Business Cycle

How Tight is the Labour Market? Sources of Changes in the Aggregate Exit Rate from Unemployment across the Business Cycle By Gaure, S. og Røed, K. 2007 Journal of Business cycle Measurement and Analysis, Vol., 3, No. 2, 155 - 174.
Abstract	We decompose variations in the aggregate exit rate from unemployment to employ-ment into two factors: i) Changes in the arrival rate of acceptable job offers; and ii) changes in the composition of the unemployment pool in terms of average employ-ability. We argue that the former of these factors provides the basis for an informative labour market tightness indicator, while the latter yields valuable information regard-ing the design of optimal labour market policies across the cycle. Based on Norwe-gian register data, we find that individual monthly exit rates tend to double from a cy-clical trough to a cyclical peak, ceteris paribus, but that cross-sectional heterogeneity nevertheless explains 88 per cent of the overall variation in individual monthly exit probabilities during the period from 1989 to 2002.
JEL Classification:	C41, E32, J64
Keywords:	Labour market tightness, Business cycles, Unemployment
Project:	1412 A new business cycle indicator
Financing:	the Norwegian Directorate of Labour and the Norwegian Ministry of Finance
Contact:	knut.roed@frisch.uio.no

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