Summary and conclusions

Abstract

Unemployment dynamics and the underlying individual experiences of unemployment differ markedly between U.S. and German labor markets. The U.S. labor market is characterized by a high-flow equilibrium of both high inflow rates into unemployment, but also high outflow rates out of unemployment. Workers become unemployed relatively often, and often also repeatedly over a short course of time, so that about 15% of the total labor force experienced at least one spell of unemployment in any given year between the mid-1980s and the mid-1990s. On the other hand, single spells of unemployment are typically of quite short duration. The median duration of unemployment spells hardly exceeds two months on average, and long-term unemployment occurs to about 5% of all unemployed workers only. Quite the reverse is true for the German labor market. Here, one might be tempted to speak of a low-flow equilibrium in comparison to the U.S. figures, as both incidence and exit rates have been considerably lower over the period under study, although certainly far from stagnancy in any meaningful sense. Averaging over the 1984-1995 period, the annual fraction of workers experiencing an unemployment spell was still at some 9% in Germany, yet unemployment duration well exceeded U.S. standards. The median duration of an unemployment spell in Germany amounted to about 5 months in the 1980s and 1990s, and almost a quarter of spells continuously lasted for more than a year. Taken together, both results imply that individual probabilities of experiencing an unemployment spell are higher in the U.S., while the probability of experiencing an unemployment spell of six months or more have actually been larger among German workers.