Anatomy of Non-Employment Risk

This paper investigates how job separation and job-finding probabilities shape the non-employment risk across ages and working group characteristics. Improving on current methods, I estimate duration models for employment and non-employment separately. I then use the results to derive the individual age profiles of conditional transitions in and out of non-employment as well as the unconditional non-employment risk profile over the whole working life. This approach allows me to apply the decomposition of changes in individual non-employment risk. To date, this type of decomposition has only been used to study aggregate non-employment dynamics. I find that differences in job separation rates across ages underlie the observed age differences in non-employment risk. When differences between working groups are under consideration, the job finding probability is just as important as the job separation probability.