On the importance of the participation margin for labor market fluctuations

Abstract

a b s t r a c tConventional analyses of labor market fluctuations ascribe a minor role to labor force participation. We show, by contrast, that flows-based analyses imply that the participation margin accounts for around one-third of unemployment fluctuations. A novel stock-flow apparatus establishes these facts, delivering three further contributions. First, the role of the participation margin appears robust to adjustments for spurious transitions induced by reporting error. Second, conventional stocks-based analyses are subject to a stock-flow fallacy, neglecting offsetting forces of worker flows on the participation rate. Third, increases in labor force attachment among the unemployed during recessions are a leading explanation for the role of the participation margin.

Are the Spanish long-term unemployed unemployable?

“…These transient flows are frequent, indicating that nonparticipation is not necessarily persistent, especially within this age bracket. Thus, as has been pointed out for the US by Elsby et al (2015), flows involving nonparticipation can be a crucial element in explaining the dynamics of unemployment.…”

Job Search Behavior over the Business Cycle

“…5 The first category (job search activities) includes contacting employers, sending out resumes, and filling out job applications, among others. 6 The ATUS has two major shortcomings for our purposes-it has a small sample size (12,(0)(1)(2)(3)(4) Before the 1994 redesign of the CPS, respondents were given only six job search methods to choose from, while after the redesign, this number increased to twelve. Consequently, it is not straightforward to use our imputation method before 1994, as the method categories are inconsistent across the ATUS and CPS.…”

“…This is useful and important for capturing aggregate averages in Section 3 but not for exploring individual level effects in Section 4. 12 In the remainder of the paper, we use imputed minutes, which we denote byŝ it for individual i at time t, as our measure of search effort in the CPS sample. This measure is a nontrivial extension of Shimer's measure as it exploits information on job search from the ATUS.…”

Point of No Return: How Do Financial Resources Affect the Timing of Retirement after a Job Separation?

“…Labor force exit simply requires the end of job search activity, regardless of the label put on the individual's current status; that is, whether he's retired or discouraged, all that matters is that's no longer actively seeking a job. Because some individuals, however, might drift in and out of labor force participation (Elsby, Hobijn, and Sahin 2013), the definition of "permanent" must ensure that one is not considered to have exited the labor force for good just because the panel happened to end during one of these drifts. 8 The respondent is considered to have left the labor force permanently if he has no weeks working or searching for at least the final six months that he is in the SIPP panel.…”