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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Declining Labor Force Attachment and Downward Trends in Unemployment and Participation
Regis Barnichon
Andrew Figura
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.


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Regis Barnichon & Andrew Figura, Declining Labor Force Attachment and Downward Trends in Unemployment and Participation, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2013-88, 01 Oct 2013.
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Keywords: Unemployment rate; labor force participation rate; individuals marginally attached to the labor force
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