Working Paper

Declining Labor Force Attachment and Downward Trends in Unemployment and Participation

Abstract: 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: E24;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2013-10-01

Number: 2013-88

Pages: 37 pages