Labor Force Participation Dynamics

Epstein, Brendan (2018): Labor Force Participation Dynamics.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Equilibrium unemployment; GDP; labor markets; procyclical; productivity; propagation; search and matching; vacancies; unemployment.
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J21 - Labor Force and Employment, Size, and Structure; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J63 - Turnover ; Vacancies ; Layoffs

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