Long‐Term Unemployment and the Great Recession: Evidence from UK Stocks and Flows

Publication Date01 May 2018
DOIhttp://doi.org/10.1111/sjpe.12139
AuthorCarl Singleton
LONG-TERM UNEMPLOYMENT AND
THE GREAT RECESSION: EVIDENCE
FROM UK STOCKS AND FLOWS
Carl Singleton*
ABSTRACT
Long-term unemployment more than doubled during the United Kingdom’s Great
Recession. Only a small fraction of this persistent increase can be accounted for
by the changing composition of unemployment across personal and work history
characteristics. Through extending a well-known stocks-flows decomposition of
labour market fluctuations, the cyclical behaviour of participation flows can
account for over two-thirds of the high level of long-term unemployment following
the financial crisis, especially the procyclical flow from unemployment to inactiv-
ity. The pattern of these flows and their changing composition suggest a general
shift in the labour force attachment of the unemployed during the downturn.
II
NTRODUCTION
The main aim of this article was to describe how the persistent rise in long-
term unemployment (LTU) during the United Kingdom’s Great Recession
came about (Figure 1).
1
This countercyclical rise in average duration, which
typically persists even after unemployment has begun to fall rapidly, has long
been of interest to those studying European labour markets.
2
Renewed inter-
national interest has been driven by the significant and less usual rise in US
unemployment durations since the 20082009 downturn, where LTU rose to
its highest post-war level, and persisted even after short-term unemployment
had largely subsided.
3
Using the Labour Force Survey (LFS), I first discuss
how much of the recent UK experience can be accounted for by changes to
the composition of the unemployment pool, i.e. by the prevalence of personal
*University of Edinburgh
1
Throughout this article, and as most commonly defined in the United Kingdom, this
refers to those unemployed and looking for work for at least 12 months.
2
See for a comprehensive review Machin and Manning (1999).
3
Examples for the US case include: Elsby et al. (2011), Kroft et al. (2013), Krueger et al.
(2014) and Kroft et al. (2016). A discussion of the features of LTU in several European
countries during the Great Recession is provided by a collection of essays in Bentolila and
Jansen (2016). Through the case of Spain, Bentolila et al. (2017) have assessed the possible
role of institutional factors in accounting for the unprecedented rise in LTU in Southern
European countries.
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12139, Vol. 65, No. 2, May 2018
©2017 Scottish Economic Society.
105
and work history characteristics among the unemployed. I then identify which
of the flows between employment, inactivity and unemployment durations can
account for LTU’s rise and persistence.
I find that LTU’s rise, from 2007 to its prolonged peak in 20102013, can-
not be accounted for in any large part by changes in the prevalence of observ-
able characteristics among those looking for work: including the industry and
occupation of previous employment, the reasons for leaving a job, and
whether an individual was most recently otherwise employed or out of the
labour force. This mirrors similar results from Kroft et al. (2016) for the Uni-
ted States over the same period.
A notable recent literature has added to earlier work by Clark and Sum-
mers (1979) highlighting the cyclical importance of fluidity at the participation
margin. Most prominently, Elsby et al. (2015) (henceforth referred to as EHS)
have demonstrated that a third of historical US unemployment rate variation
can be accounted for by the cumulative influence of monthly changes in the
transition hazard rates between unemployment and inactivity. Applications of
their methodology to flows estimates obtained from the LFS have demon-
strated that this result generalises to the United Kingdom, for a period includ-
ing the Great Recession (Borowczyk-Martins and Lal
e, 2016; Razzu and
Singleton, 2016). Specifically for long-term unemployment changes, Krueger
et al. (2014) and Kroft et al. (2016) have identified the importance of cyclical
patterns in participation flows using calibrated matching models. Both find
that allowing for duration dependence in exit rates to employment, as well as
Figure 1. UK unemployment rate and LTU, 19972015.
Source: Labour Market Statistics, Office for National Statistics, ages 1664, accessed
November 2015; shaded area denotes UK officially defined recession, 2008q22009q2.
[Colour figure can be viewed at wileyonlinelibrary.com]
106 CARL SINGLETON
Scottish Journal of Political Economy
©2017 Scottish Economic Society

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