Job-to-job transitions, job finding and the ins of unemployment

•There is large heterogeneity in outcomes by reason for separation in the US and UK. These differing reasons change in different directions over the business cycle.•The decline in quits during recessions is driven by the subset of quits that almost never result in a transition to unemployment.•Separations are unimportant if treated as uniform, but increase significantly in importance after allowing for the large heterogeneity in the reason for separation, especially in the US.•Changes in job separations and changes in job finding conditional on separation are both important drivers of fluctuations in employment to unemployment transitions. Increases in the ins of unemployment during recessions are the result of two major forces: increased separations, or a fall in job finding of potential job-to-job transitions. This paper quantifies the contribution of these two channels using the flows approach to the labour market in the UK and US over a period of two decades including the Great Recession. First, the paper documents large variation in outcomes by reason for separation. Second, the paper shows that abstracting from this variation can significantly bias the importance of separations and job finding in driving changes in the ins of unemployment and the unemployment rate. Finally, the paper shows that fluctuations in layoffs and job finding conditional on separation are both important drivers of fluctuations in the ins of unemployment.