On the importance of the participation margin for labor market fluctuations

Michael Elsby, Bart Hobijn and Aysegul Sahin

Journal of Monetary Economics, 2015, vol. 72, issue C, 64-82

Abstract: Conventional 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.

Keywords: Worker flows; Unemployment; Business cycles; Labor force participation (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (205)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:72:y:2015:i:c:p:64-82

DOI: 10.1016/j.jmoneco.2015.01.004

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