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Labor supply and the business cycle: The “Bandwagon Worker Effect”

Ángel Martín-Román (), Jaime Cuéllar Martín and Alfonso Moral ()

MPRA Paper from University Library of Munich, Germany

Abstract: The relationship between the labor force participation and the business cycle has become a topic in the economic literature. However, few studies have considered whether the cyclical sensitivity of the labor force participation is influenced by “social effects”. In this paper, we construct a theoretical model to develop the “Added Worker Effect” and the “Discouraged Worker Effect”, and we integrate the “social effects”, coining a new concept, the Bandwagon Worker Effect (BWE). To estimate the cyclical sensitivity of the labor force participation, we employ a panel dataset of fifty Spanish provinces for the period 1977–2015. Finally, we use spatial econometrics techniques to test the existence of the BWE in the local labor markets in Spain. Our results reveal that there exists a positive spatial dependence in the cyclical sensitivity of the labor force participation that decreases as we fix a laxer neighborhood criterion, which verifies the existence of the BWE. From the perspective of economic policy, our work confirms that “social effects” play a key role at the time of determining the economic dynamics of the territories.

Keywords: labor force participation; business cycle; regional labor markets; bandwagon effect; spatial dependence (search for similar items in EconPapers)
JEL-codes: C23 D03 E32 J21 R23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2018-11-06
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Working Paper: Labor supply and the business cycle: The “Bandwagon Worker Effect” (2018) Downloads
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