Declining Desire to Work and Downward Trends in Unemployment and Participation

51 Pages Posted: 8 Jun 2015 Last revised: 28 Jul 2021

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: June 2015

Abstract

This paper argues that a key aspect of the US labor market is the presence of time-varying heterogeneity across nonparticipants. We document a decline in the share of nonparticipants who report wanting to work, and we argue that that decline, which was particularly strong in the second half of the 90s, is a major aspect of the downward trends in unemployment and participation over the past 20 years. A decline in the share of "want to work" nonparticipants lowers both the participation rate and the unemployment rate, because a nonparticipant who wants to work has (i) a higher probability of entering the labor force (compared to other nonparticipants), and (ii) a higher probability of joining unemployment conditional on entering the labor force. We use cross-sectional variation to estimate a model of nonparticipants' propensity to want to work, and we find that changes in the provision of welfare and social insurance, possibly linked to the mid-90s welfare reforms, explain about 50 percent of the decline in desire to work among nonparticipants.

Suggested Citation

Barnichon, Regis and Figura, Andrew, Declining Desire to Work and Downward Trends in Unemployment and Participation (June 2015). NBER Working Paper No. w21252, Available at SSRN: https://ssrn.com/abstract=2615657

Regis Barnichon (Contact Author)

Federal Reserve Bank of San Francisco ( email )

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Andrew Figura

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

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