The labor market is characterized by the flows of workers in and out of employment. Which of the following best describes the size of these flows?

A. Each month, the flows in and out of employment are mostly related to new entrants looking for their first jobs and retirees exiting the market.

B. Each month, the flows in and out of employment are large relative to the number of workers who are unemployed.

C. Each month, the flows in and out of employment are very small compared to the size of the labor force.

D. All of the above are true statements.

The correct answer is B. Each month, the flows in and out of employment are large relative to the number of workers who are unemployed.

Explanation:

From the information on the flows of entry and exit of workers of each labor state (occupied, unoccupied, inactive), between two moments of time, the Matrix of Transition Probabilities between Labor States is constructed. This matrix shows the average probability (transition rate) with which an individual in a previous state changes status to the next period. The usefulness of this approach is that it allows a dynamic analysis of how the entry and exit flows of each employment status affects the aggregates of employment, unemployment and inactivity. This approach is complementary to the analysis of the labor market based on population stock statistics (of working age, occupied, unemployed, inactive) and rates (unemployment, participation, occupation) that are usually made.