Declining Labor Force Attachment and Downward Trends in Unemployment and Participation

Abstract

The US labor market witnessed two apparently unrelated secular movements in the last 30 years: a decline in unemployment between the early 1980s and the early 2000s, and a decline in participation since the early 2000s. Using CPS micro data and a stock‡ow accounting framework, we show that a substantial, and hitherto unnoticed, factor behind both trends is a decline in the share of nonparticipants who are at the margin of participation. A lower share of marginal nonparticipants implies a lower unemployment rate, because marginal nonparticipants enter the labor force mostly through unemployment, while other nonparticipants enter the labor force mostly through employment. JEL classi…cations: J6, E24.

Labor Force Participation: Recent Developments and Future Prospects

“…This is based on a counterfactual of no change in the share of civilian working-age population reporting themselves wanting a job. This counterfactual seems reasonable based on the pattern earlier in the decade, although over the longer term the share has been trending downward (Barnichon and Figura 2013).…”

“…For example, if wage rates were rising more quickly, more nonparticipants would likely claim that they want a job, indicating that the measures in figure 7 might be understating the true extent of labor market discouragement. In addition, Barnichon and Figura (2013) argue that the share of want-a-job nonparticipants might have an important secular component, thus making the inference of cyclicality in labor force participation from this category of nonparticipants even more difficult. or family.…”

“…This is relative to a counterfactual that the nonretired, nondisabled share of the population reporting themselves as not wanting a job would have been flat in the absence of the recession. In fact, this share has been rising over time (Barnichon and Figura 2013), suggesting that this may be an upper bound on the potential pool of participants.…”

Job Finding Rate and Female Labor Supply- A Heterogeneity Perspective

“…It is a key concept in understanding turnover in the labor market as fluctuations in the job finding rate have a mechanical outcome for aggregate participation and unemployment rates. This association is further justified due to the heterogeneity of composition and dispersion effect 2 . The former heterogeneity conventionally defines the non-employed pool and arises if the characteristics of individuals change over time, making job finding more or less likely 2 .…”

“…This association is further justified due to the heterogeneity of composition and dispersion effect 2 . The former heterogeneity conventionally defines the non-employed pool and arises if the characteristics of individuals change over time, making job finding more or less likely 2 . The later comes from the dispersion in the labor market conditions and arises if the tight labor market coexists with the slack labor market.…”