A general methodology to measure labour market dynamics

TL;DR

This paper introduces a comprehensive methodology for measuring labour market dynamics through transition rates, enabling detailed analysis of employment flows and policy impacts using longitudinal data.

Contribution

It develops a novel approach to estimate instantaneous transition rates from discrete observations, applicable to multiple states, and demonstrates its use with Italian labour market data.

Findings

Decomposition of unemployment rate fluctuations into inflow and outflow components.

Assessment of the impact of labour market reforms on employment transitions.

Abstract

We propose a general methodology to measure labour market dynamics, inspired by the search and matching framework, based on the estimate of the transition rates between labour market states. We show how to estimate instantaneous transition rates starting from discrete time observations provided in longitudinal datasets, allowing for any number of states. We illustrate the potential of such methodology using Italian labour market data. First, we decompose the unemployment rate fluctuations into inflow and outflow driven components; then, we evaluate the impact of the implementation of a labour market reform, which substantially changed the regulations of temporary contracts.