Modeling labor market flows on the basis of sectoral employment in Europe

By tracking the cross-sectoral distribution of employment growth, it is possible to significantly improve the ability to understand aggregate fluctuations of labor force. Adequate model can provide information which sectors have stronger impact on unemployment-to-employment transitional probability. The main goal of this research is modeling the influence of sectoral employment on outflow rate across Europe during economic crisis. Authors argue that shifts in sectoral demand have strong influence on cyclical variation in unemployment-to-employment transition. Study also uncovers highly linear relationships of outflow rate from unemployment to employment and job flows at sectoral level. Empirical data proved a strong positive correlation between dispersion of employment growth across sectors and outflow rate in Europe. Shifts in demand from some sectors to the others are responsible for significant fraction of unemployment-to-employment transition probability. Reallocation shocks accounted for about 70 to 80 percent variability of outflow rates across Europe, during the 2008-2012