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Labor Force Participation Dynamics

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  • Epstein, Brendan

Abstract

It is well known that the U.S. labor force participation rate (LFP) is procyclical. I highlight that, in contrast, LFP is negatively correlated with labor productivity even though GDP and productivity are positively correlated. I show that these opposite correlations are explained by the differential dynamic adjustment of LFP given exoge- nous shocks to, alternatively, GDP and productivity. My analysis is guided by the theoretical underpinnings of the benchmark model of equilibrium unemployment. This guidance is important, as it helps reveal that the cyclical behavior of job vacancies explains a considerable fraction of the cyclical behavior of LFP.

Suggested Citation

  • Epstein, Brendan, 2018. "Labor Force Participation Dynamics," MPRA Paper 88776, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:88776
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    References listed on IDEAS

    as
    1. Elsby, Michael W.L. & Hobijn, Bart & Şahin, Ayşegül, 2015. "On the importance of the participation margin for labor market fluctuations," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 64-82.
    2. Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegül, 2011. "A three state model of worker flows in general equilibrium," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1107-1133, May.
    3. Tripier, Fabien, 2004. "Can the labor market search model explain the fluctuations of allocations of time?," Economic Modelling, Elsevier, vol. 21(1), pages 131-146, January.
    4. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, April.
    5. Veracierto, Marcelo, 2008. "On the cyclical behavior of employment, unemployment and labor force participation," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1143-1157, September.
    6. David M. Arseneau & Sanjay K. Chugh, 2012. "Tax Smoothing in Frictional Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 120(5), pages 926-985.
    7. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    8. Campolmi, Alessia & Gnocchi, Stefano, 2016. "Labor market participation, unemployment and monetary policy," Journal of Monetary Economics, Elsevier, vol. 79(C), pages 17-29.
    9. Willem Van Zandweghe, 2012. "Interpreting the recent decline in labor force participation," Economic Review, Federal Reserve Bank of Kansas City, vol. 97(Q I), pages 5-34.
    10. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Ayşegül Şahin, 2012. "Is Labor Supply Important for Business Cycles?," NBER Working Papers 17779, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Hina Amber & Bezawit Beyene Chichaibelu, 2023. "Patterns and Causes of Female Labor Force Participation: An Age–Period–Cohort Analysis for Pakistan," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 42(2), pages 1-31, April.

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    More about this item

    Keywords

    Equilibrium unemployment; GDP; labor markets; procyclical; productivity; propagation; search and matching; vacancies; unemployment.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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