Business Cycles and Compositional Variation in U.S. Unemployment

In this paper we study U.S. unemployment dynamics using grouped unemployment data from the Current Population Survey over the period 1968-1992. We estimate a model that traces variation in these unemployment data, both over time and between demographic groups, back to the underlying variation in the inflow and the outflow. In turn, we model the outflow as a transition process in which we allow the exit probabilities to depend on calender time, duration, and demographic group. We particularly focus on the measurement and economic interpretation of the interaction of duration dependence of exit probabilities and the business cycle.