Working Paper: CEPR ID: DP13481
Authors: Regis Barnichon
Abstract: In this note, I decompose LFPR movements into the contributions of the inflows into participation --the Ins-- and the outflows out of participation --the Outs--. Contrary to conventional wisdom, movements in the outflow rate account for most of the variation of the labor force participation rate: the LFPR increases in tight labor markets because fewer workers leave the labor force, not because more nonparticipants enter. The cyclicality of the outflow rate is in turn mechanically driven by a composition effect: in tight labor markets, job seekers find jobs faster and as a result become less likely to leave the labor force.
Keywords: No keywords provided
JEL Codes: E24; E32; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor market tightness (J20) | outflow rate (F21) |
| outflow rate (F21) | LFPR (J89) |
| labor market tightness (J20) | LFPR (J89) |
| labor market conditions (J29) | job finding rates (J68) |
| job finding rates (J68) | outflow rate (F21) |
| outflow rate (F21) | LFPR variance (J49) |