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

Martín-Román, Ángel L. and Cuéllar Martín, Jaime and Moral, Alfonso (2018): Labor supply and the business cycle: The “Bandwagon Worker Effect”.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: labor force participation, business cycle, regional labor markets, bandwagon effect, spatial dependence
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; 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; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R23 - Regional Migration ; Regional Labor Markets ; Population ; Neighborhood Characteristics

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