On the importance of the participation margin for labor market fluctuations

Michael Elsby, Bart Hobijn, Aysegul Sahin

Research output: Contribution to journalArticlepeer-review

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
Pages (from-to)64-82
Number of pages14
JournalJournal of Monetary Economics
Volume72
Early online date29 Jan 2015
DOIs
Publication statusPublished - May 2015

Keywords

  • worker flows
  • unemployment
  • business cycles
  • labor force participation

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