The Cyclicality of Separation and Job Finding Rates

Revised January 2008

WP 07-19/R – This paper uses CPS gross flow data to analyze the business cycle dynamics of separation and job finding rates and to quantify their contributions to overall unemployment variability.

A previous version of this working paper was originally published in September 2007.

Cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them, while the job finding rate is positively correlated with and tends to lag productivity. Contemporaneous fluctuations in the separation rate explain between 40 and 50 percent of fluctuations in unemployment, depending on how the data are detrended. This figure becomes larger when dynamic interactions between the separation and job finding rates are considered.

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