On the importance of the participation margin for labor market fluctuations

Michael W L Elsby, Bart Hobijn, Ayşegül Şahin

Research output: Contribution to journalArticle

39 Citations (Scopus)

Abstract

Conventional analyses of labor market fluctuations ascribe a minor role to labor force participation. We show, by contrast, that flows-based analyses imply that the participation margin accounts for around one-third of unemployment fluctuations. A novel stock-flow apparatus establishes these facts, delivering three further contributions. First, the role of the participation margin appears robust to adjustments for spurious transitions induced by reporting error. Second, conventional stocks-based analyses are subject to a stock-flow fallacy, neglecting offsetting forces of worker flows on the participation rate. Third, increases in labor force attachment among the unemployed during recessions are a leading explanation for the role of the participation margin.

Original languageEnglish (US)
Pages (from-to)64-82
Number of pages19
JournalJournal of Monetary Economics
Volume72
DOIs
StatePublished - May 1 2015
Externally publishedYes

Fingerprint

Fluctuations
Labour market
Margin
Participation
Labor force
Worker flows
Participation rate
Labor force participation
Recession
Unemployment

Keywords

  • Business cycles
  • Labor force participation
  • Unemployment
  • Worker flows

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

On the importance of the participation margin for labor market fluctuations. / Elsby, Michael W L; Hobijn, Bart; Şahin, Ayşegül.

In: Journal of Monetary Economics, Vol. 72, 01.05.2015, p. 64-82.

Research output: Contribution to journalArticle

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