Declining Labor Force Attachment and Downward Trends in Unemployment and Participation
38 Pages Posted: 9 Jan 2014
Date Written: December 11, 2013
The U.S. labor market witnessed two apparently unrelated secular movements in the last 30 years: a decline in unemployment between the early 1980s and the early 2000s, and a decline in participation since the early 2000s. Using CPS micro data and a stock-flow accounting framework, we show that a substantial, and hitherto unnoticed, factor behind both trends is a decline in the share of nonparticipants who are at the margin of participation. A lower share of marginal nonparticipants implies a lower unemployment rate, because marginal nonparticipants enter the labor force mostly through unemployment, while other nonparticipants enter the labor force mostly through employment.
Keywords: Unemployment rate, labor force participation rate, individuals marginally attached to the labor force
JEL Classification: J6, E24
Suggested Citation: Suggested Citation