Discouraged Workers in Developed Countries and Added Workers in Developing Countries? Unemployment Rate and Labour Force Participation

Grace H.Y. Leea and Jaai Parasnis
Authors registered in the RePEc Author Service: Grace Hooi Yean Lee

No 15-14, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: Changes in the unemployment rate can have differing impacts on the labour force participation rate depending on the strength of the added worker effect and the discouraged worker effect. This paper documents the differences in the relationship between the unemployment rate and the labour force participation rate across a panel of developing countries and OECD countries. We employ a system GMM approach to control for and to establish the bi-directional causality between unemployment and labour force participation. We find that the discouraged worker effect does dominate in developed countries, while dominance of the added worker effect in developing countries leads to an increase in labour force in the face of rising unemployment.

Keywords: unemployment; labour force; system GMM; Granger causality; developing countries; OECD (search for similar items in EconPapers)
JEL-codes: C23 J21 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2014-04
References: Add references at CitEc
Citations: View citations in EconPapers (26)

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Journal Article: Discouraged workers in developed countries and added workers in developing countries? Unemployment rate and labour force participation (2014)
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