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Labor force participation and the discouraged worker effect

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  • John Dagsvik
  • Tom Kornstad
  • Terje Skjerpen

Abstract

This article analyzes labor force participation with particular reference to the discouraged worker effect. Discouraged workers are those who will search for work when the labor market is tight but do not search for work when the labor market is slack because they consider their chances of finding a suitable job too low. The theoretical point of departure is a search model where the worker evaluates the expected utility of searching for work and decides to participate in the labor market if the expected utility of search exceeds the utility of not working. From this framework, we derive an empirical model for the probability that the worker will be out of the labor force, unemployed, or employed. The model is estimated on a sample of married and cohabitating women in Norway covering the period from 1988 to 2008. The results show that the discouraged worker effect is substantial. On average, about one-third of those who are out of the labor force are discouraged, according to our analysis. Copyright Springer-Verlag 2013

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  • John Dagsvik & Tom Kornstad & Terje Skjerpen, 2013. "Labor force participation and the discouraged worker effect," Empirical Economics, Springer, vol. 45(1), pages 401-433, August.
    • Handle: RePEc:spr:empeco:v:45:y:2013:i:1:p:401-433
    DOI: 10.1007/s00181-012-0598-9
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    More about this item

    Keywords

    Discouraged workers; Labor force participation; Labor supply; Random utility modeling; C35; J21; J22; J64;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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