Paper #1397

Title:

Declining labor force attachment and downward trends in unemployment and participation

Authors:

Régis Barnichon and Andrew Figura

Date:

October 2013

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- flow 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.

Keywords:

marginal participant, want a job, stock-flow decomposition.

JEL codes:

J6, E24.

Area of Research:

Macroeconomics and International Economics

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