Flow origins of labor force participation fluctuations

Flow origins of labor force participation fluctuations

By Mike Elsby, Bart Hobijn, Fatih Karahan, Gizem Koşar and Ayşegül Şahin

Publish in American Economic Association (AEA) Papers and Proceedings in 2019


We investigate the origins of cyclical and trend movements in the labor force participation rate (LFPR) using a three-state flow decomposition. The procyclicality of LFPR can be traced to cyclical flows between employment and unemployment. By contrast, labor force entry and exit explain virtually all of the trend movements. Among men, rising labor force exit rates account for two-thirds of the trend decline in male LFPR since the 1990s. For women, trend increases in female LFPR during the 1990s were dominated by declining exit rates, while the trend decline since the Great Recession can be traced to declining entry rates.

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