Declining Labor Force Attachment and Downward Trends in Unemployment and Participation

38 Pages Posted: 9 Jan 2014

See all articles by Regis Barnichon

Regis Barnichon

Federal Reserve Bank of San Francisco

Andrew Figura

Board of Governors of the Federal Reserve System - Macroeconomic Analysis Section

Date Written: December 11, 2013

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.

Keywords: Unemployment rate, labor force participation rate, individuals marginally attached to the labor force

JEL Classification: J6, E24

Suggested Citation

Barnichon, Regis and Figura, Andrew, Declining Labor Force Attachment and Downward Trends in Unemployment and Participation (December 11, 2013). FEDS Working Paper No. 2013-88, Available at SSRN: https://ssrn.com/abstract=2376368 or http://dx.doi.org/10.2139/ssrn.2376368

Regis Barnichon

Federal Reserve Bank of San Francisco ( email )

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Andrew Figura (Contact Author)

Board of Governors of the Federal Reserve System - Macroeconomic Analysis Section ( email )

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