RESEARCH PAPER NO. 842

WHY ARE RECESSIONS AS DEEP AS THEY ARE? THE BEHAVIOUR OVER TIME OF THE OUTFLOW FROM UNEMPLOYMENT: A NEW PERSPECTIVE

BY

ROBERT DIXON, JOHN FREEBAIRN & G. C. LIM

APRIL 2002

Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia

ABSTRACT

In this paper we deal with five related questions. What are the 'stylised facts' about behaviour of flows into and out of unemployment and the Unemployment Rate in Australia, especially in recessions? Why does the number of persons flowing out of Unemployment (including the number flowing into employment) rise in recessions? How does outflow behaviour affect the severity of recessions? What has been the history of the probability of any one unemployed person exiting unemployment and what is the elasticity of this probability with respect to the Unemployment Rate? Has this elasticity been changing over time and, if so, what are the consequences for this for the severity of recessions?

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