An examination of the impact of business cycles on labor market transitions by age

Labor force transitions are examined using CPS data matched across months from 1996-2012. Cyclical movements in the underlying transitions probabilities into and out of unemployment are contrasted prior to the Great Recession and afterwards. Using matched monthly CPS data, this paper studies differences in labor force transitions by age over business cycles focusing on differential experiences during the Great Recession. Monthly transitions across the three labor force states, employment, unemployment, and nonparticipation of 25-55 years old males are examined from 1996 to 2012. For transitions between employment and unemployment, considerable evidence shows that young men are more likely to be laid off when the economy turns bad, and that they have less chance of becoming re-employed when demand conditions are weak. The age differences in rates of transition across different labor market states examined in this article are fundamentally related to the well-being of individuals. If the average member of an age group always faces a larger chance of being laid off and those odds increase whenever the economy slows, then undeniably, his or her situation has worsened. Concerns about the potential impact of business cycles  on young males as well as its role in reducing economic efficiency each provide motivations for this study.  Estimates including nonparticipants reinforced this pattern that young men have worse experiences during economic downturns. Comparing the periods before and after the start of the Great Recession, the most noticeable change in labor market dynamics were increases in the base probability of moving from employment-to-unemployment and a reduction in the probability of moving from unemployment-to-employment flow experienced by both groups. The increase in unemployment during the Great Recession was most strongly associated with the increase in the odds of moving from employment to unemployment.