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Labor Force Participation Dynamics

Brendan Epstein ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Equilibrium unemployment; GDP; labor markets; procyclical; productivity; propagation; search and matching; vacancies; unemployment. (search for similar items in EconPapers)
JEL-codes: E24 E32 J21 J63 (search for similar items in EconPapers)
Date: 2018-08-10
New Economics Papers: this item is included in nep-mac
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