Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of San Francisco
Working Paper Series
On the Importance of the Participation Margin for Market Fluctuations
Michael Elsby
Bart Hobijn
Aysegül Sahin
Abstract

Conventional analyses of cyclical fluctuations in the labor market ascribe a minor role to the labor force participation margin. In contrast, a flows-based decomposition of the variation in labor market stocks reveals that transitions at the participation margin account for around one-third of the cyclical variation in the unemployment rate. This result is robust to adjustments of data for spurious transitions, and for time aggregation. Inferences from conventional, stocks-based analyses of labor force participation are shown to be subject to a stock-flow fallacy, neglecting the offsetting forces of worker flows that underlie the modest cyclicality of the participation rate. A novel analysis of history dependence in worker flows demonstrates that a large part of the contribution of the participation margin can be traced to cyclical fluctuations in the composition of the unemployed by labor market attachment.


Download Full text
Cite this item
Michael Elsby & Bart Hobijn & Aysegül Sahin, On the Importance of the Participation Margin for Market Fluctuations, Federal Reserve Bank of San Francisco, Working Paper Series 2013-05, 25 Feb 2013.
More from this series
JEL Classification:
Subject headings:
Keywords: Labor market; Unemployment
DOI: 10.24148/wp2013-05
For corrections, contact Federal Reserve Bank of San Francisco Research Library ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal