Working Paper: NBER ID: w21252
Authors: Regis Barnichon; Andrew Figura
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.
Keywords: labor market; unemployment; participation; welfare reform; social insurance
JEL Codes: E24; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mid-90s welfare reforms (I38) | decline in mothers' desire to work (J22) |
| decline in mothers' desire to work (J22) | decline in unemployment rate (J64) |
| decline in mothers' desire to work (J22) | decline in participation rate (J26) |
| mid-90s welfare reforms (I38) | decline in desire to work among nonparticipants (J22) |
| nonparticipants who want a job (J68) | higher probability of entering the labor force (J21) |
| nonparticipants who want a job (J68) | higher chance of becoming unemployed (J65) |
| decline in desire to work (J29) | push some nonparticipants further from the labor force (J79) |
| decline in desire to work (J29) | observed primarily among prime-age females and low-income households (I24) |