The ins and outs of cyclical unemployment

One of the strongest trends in recent macroeconomic modeling of labor market fluctuations is to treat unemployment inflows as acyclical. This trend stems in part from some influential recent papers that stress the role of longer unemployment spells, rather than more unemployment spells, in accounting for recessionary increases in unemployment. After reviewing an empirical literature going back several decades, we provide a detailed analysis of repeated cross-section data from the Current Population Survey. Like most previous researchers, we find an important role for increased unemployment duration, but we also document an important role for increased inflows to unemployment. Our main contributions relative to the rich existing literature are to frame the analysis with a convenient log change decomposition, to use that decomposition to provide separate depictions of rising unemployment in each recession since World War II, and to highlight the importance of layoffs in generating cyclical unemployment. We conclude that a complete understanding of cyclical unemployment requires an explanation of countercyclical inflow rates (especially for job losers) as well as procyclical outflow rates. In principle, the increased unemployment during a recession could arise from an increas