Decomposing Volatilities and Asymmetries in Unemployment: the Ins versus the Outs

Applying Shimer's (2012) measurement method to the Economically Active Population Survey data(1986Q1-2011Q4) in Korea, we estimate the unobserved job separation and finding rate, with which we decompose unemployment fluctuations into the parts driven by two labor flows: inflows to unemployment(the Ins) and outflows from unemployment(the Outs). Furthermore, we estimate the relative contributions of each flow to unemployment volatility (variance) and asymmetry(skewness), and the same analysis is implemented on unemployment data by age. Main findings are as follows: First, both the volatility and asymmetry of job separation rates predominate over those of job finding rates. Second, while in the medium and long run, both rates contribute remarkably to asymmetric movements of unemployment, the short-run asymmetry in unemployment fluctuations mainly originates from significant positive skewness in job separation rates. Third, the decomposition analyses confirm that in terms of both volatility and asymmetry, inflows to unemployment play a more dominant role in explaining unemployment fluctuations than outflows from unemployment do. Finally, decomposing unemployment rates by age, we find that the relative contributions of job finding rates are inversely related to the ages of the unemployed.