UK Labour Force Flows, Cyclical Movements, and Unemployment Research

Bank of England News

Published April 2nd, 2026

Detected April 2nd, 2026

Summary

Bank of England published Staff Working Paper No. 1,178 examining cyclical movements in UK labour market participation and unemployment dynamics. The paper uses UK Labour Force Survey data to analyze how workers entering unemployment from different states (job loss versus inactivity) exhibit different labour force attachment. Researchers extended a Diamond-Mortensen-Pissarides search model to show compositional changes in the unemployment pool amplify unemployment fluctuations by approximately 50%.

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Bank of England Staff Working Paper No. 1,178 (Key, McKernan, Speigner) presents research on UK labour force participation flows using LFS data from 2008-2026. The study finds that procyclical exit from the labour force among the unemployed is strongly correlated with compositional changes in the unemployment pool—workers entering unemployment from inactivity are substantially less attached to the labour market than those entering from job loss. The authors extend a Diamond-Mortensen-Pissarides search-and-matching model to incorporate heterogeneous labour market attachment and demonstrate this mechanism increases unemployment volatility by roughly 50%, helping explain the sharp rise in unemployment at the Great Recession onset.

This is an informational research paper with no regulatory requirements or compliance obligations. No action is required from regulated entities. The paper aims to encourage academic comment and debate on labour market dynamics and monetary policy implications.

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Out of work, out of the labour force? Attachment, search effort and participation flows

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.

Published on

02 April 2026

Staff Working Paper No. 1,178

By Tomas Key, Matthew McKernan and Bradley Speigner

Cyclical movements in labour market slack depend not only on job losses and hiring, but also on which workers find themselves unemployed at different points in time and how likely they are to remain in the labour force. Using data from the UK Labour Force Survey (LFS), we show that the procyclicality in the rate at which unemployed workers leave the labour force is strongly correlated with compositional changes in the unemployment pool. Workers who enter unemployment following job loss are substantially less likely to exit the labour force than workers who enter unemployment from inactivity. We document that whether an unemployed worker was previously employed or inactive is the strongest predictor of their attachment to the labour market, and show that this is not explained by variation in search effort. Motivated by these findings, we extend a Diamond-Mortensen-Pissarides search-and-matching model to allow for heterogeneous labour market attachment among the unemployed. Fluctuations in job separations change the composition of the unemployment pool and amplify unemployment fluctuations relative to the standard model. Quantitatively, this mechanism increases unemployment volatility by around 50%, and helps the model account for the sharp rise in unemployment at the onset of the Great Recession.

Out of work, out of the labour force? Attachment, search effort and participation flows