In the Wrong Place at the Wrong Time: The Extent of Frictional and Structural Unemployment

Abstract

A major cause of unemployment, distinct from inadequate aggregate demand and instability of workers, is the instability of jobs themselves. In an average year about one in every nine jobs disappear and one in every eight is newly created. This is based on an analysis of year to year employment changes among the private employers of Wisconsin between 1977 and 1982. This job loss may account for roughly 2.2 percentage points, or one quarter, of the average unemployment rate. As much as half of the transitions of workers from employment to non-employment may be accounted for by the destruction of jobs. Establishments appear to adjust their employment quickly, largely within one year. Employment growth rates one year apart are negatively correlated, and thereafter nearly follow a random walk. Establishments exhibit considerable heterogeneity in employment growth rates, with some positive cyclical variations, but little industry effect. Employment shifts across establishments within an industry are of far greater magnitude than shifts across industry lines.