This paper by Robert Shimer reassesses the dynamics of unemployment, focusing on the probability that an employed worker becomes unemployed and the probability that an unemployed worker finds a job. Using data from 1948 to 2007, Shimer finds that the job-finding probability accounts for three-quarters of the fluctuations in the unemployment rate, while the employment exit probability accounts for one-quarter. In recent decades, the employment exit probability has become less cyclical, contributing little to the fluctuations in the unemployment rate. Shimer's analysis is based on novel but strong assumptions: workers neither enter nor exit the labor force, and all workers are ex ante identical. Relaxing these assumptions, Shimer uses microeconomic data to measure the gross flow of workers between employment and unemployment, finding that fluctuations in the unemployment-to-employment transition rate are more significant than those in the employment-to-unemployment transition rate. The paper also examines the role of heterogeneity, concluding that changes in the composition of the unemployed population do not significantly explain the fluctuations in the job-finding probability. The findings challenge conventional wisdom in macroeconomic models of the labor market, suggesting that understanding the transition rate from unemployment to employment is crucial for explaining unemployment fluctuations.This paper by Robert Shimer reassesses the dynamics of unemployment, focusing on the probability that an employed worker becomes unemployed and the probability that an unemployed worker finds a job. Using data from 1948 to 2007, Shimer finds that the job-finding probability accounts for three-quarters of the fluctuations in the unemployment rate, while the employment exit probability accounts for one-quarter. In recent decades, the employment exit probability has become less cyclical, contributing little to the fluctuations in the unemployment rate. Shimer's analysis is based on novel but strong assumptions: workers neither enter nor exit the labor force, and all workers are ex ante identical. Relaxing these assumptions, Shimer uses microeconomic data to measure the gross flow of workers between employment and unemployment, finding that fluctuations in the unemployment-to-employment transition rate are more significant than those in the employment-to-unemployment transition rate. The paper also examines the role of heterogeneity, concluding that changes in the composition of the unemployed population do not significantly explain the fluctuations in the job-finding probability. The findings challenge conventional wisdom in macroeconomic models of the labor market, suggesting that understanding the transition rate from unemployment to employment is crucial for explaining unemployment fluctuations.