Business cycles and compositional variation in US unemployment

In this article, we study U.S. unemployment dynamics using grouped unemploy ment data from the Current Population Survey over the period 1968-1992. We estimate a model that traces variation in these unemployment data, both ove r 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 p rocess in which we allow the exit probabilities to depend on calendar time, duration, and demographic group. We use the estimation results to provide a decomposition of aggregate U.S. unemployment dynamics in various incidenc e and duration components.