Declining Desire to Work and Downward Trends in Unemployment and Participation

Régis Barnichon and Andrew Figura

No 21252, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper argues that a key aspect of the US labor market is the presence of time-varying heterogeneity across nonparticipants. We document a decline in the share of nonparticipants who report wanting to work, and we argue that that decline, which was particularly strong in the second half of the 90s, is a major aspect of the downward trends in unemployment and participation over the past 20 years. A decline in the share of "want to work" nonparticipants lowers both the participation rate and the unemployment rate, because a nonparticipant who wants to work has (i) a higher probability of entering the labor force (compared to other nonparticipants), and (ii) a higher probability of joining unemployment conditional on entering the labor force. We use cross-sectional variation to estimate a model of nonparticipants' propensity to want to work, and we find that changes in the provision of welfare and social insurance, possibly linked to the mid-90s welfare reforms, explain about 50 percent of the decline in desire to work among nonparticipants.

JEL-codes: E24 J6 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-lab and nep-mac
Note: EFG LS ME PE
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Citations: View citations in EconPapers (30)

Published as Declining Desire to Work and Downward Trends in Unemployment and Participation , Regis Barnichon, Andrew Figura. in NBER Macroeconomics Annual 2015, Volume 30 , Eichenbaum and Parker. 2016

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Chapter: Declining Desire to Work and Downward Trends in Unemployment and Participation (2015)
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