Business Volatility, Job Destruction and Unemployment

Steven Davis, Jason Faberman, John C. Haltiwanger, Ron Jarmin and Javier Miranda , American Economic Journal: Macroeconomics 2(2) , 259-287 , April 2010.

Unemployment inflows fell from 4 percent of employment per month in the early 1980s to 2 percent by the mid 1990s. Using low frequency movements in industry-level data, we estimate that a 1 percentage point drop in the quarterly job destruction rate lowers the monthly unemployment inflow rate by 0.28 points. By our estimates, declines in job destruction intensity account for 28 (55) percent of the fall in unemployment inflows from 1982 (1990) to 2005. Slower job destruction accounts for similar fractions of long-term declines in the rate of unemployment.

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