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Federal Reserve Bank of Kansas City
Research Working Paper
The Cyclical Behavior of Labor Force Participation
Didem Tuzemen
Willem Van Zandweghe

We document that labor force participation declines in the short run following a positive technology shock. The countercyclical response of labor force participation to a technology shock contrasts with the well documented mild procyclical behavior of labor force participation in the business cycle. In a search model of the labor market that incorporates a participation choice, we show that a positive technology shock reduces labor force participation in the short run under a reasonable calibration. In the calibrated model, discount factor shocks induce a procyclical response of labor force participation. As a result, the model can generate both the countercyclical response to technology shocks and the procyclical behavior, consistent with the evidence. Our results indicate an important role of nontechnology shocks for explaining labor market fluctuations.

Download https://doi.org/10.18651/RWP2018-08
Cite this item
Didem Tuzemen & Willem Van Zandweghe, The Cyclical Behavior of Labor Force Participation, Federal Reserve Bank of Kansas City, Research Working Paper RWP 18-8, 01 Aug 2018.
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Subject headings:
Keywords: Labor Force Participation; Unemployment; Technology Shocks; Discount Factor Shocks
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