Cross-country differences in labor market participation are often larger than differences in unemployment rates. The same holds true across demographic groups within a given economy. We argue that the interaction between labor force participation decisions and labor market frictions can help us understand these patterns. This interaction highlights dynamic aspects of the participation decision, in contrast to standard textbook treatments that emphasize static costs and benefits of participation. We extend the standard labor market search problem to allow for a third state--non-participation--and assumes that stochastic participation costs precipitate flows into and out of non-participation. We fully characterize the worker's decision problem and use numerical simulations to demonstrate how participation patterns vary with individual characteristics and with labor market conditions.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 53 (2009) Issue (Month): 5 (July) Pages: 568-587 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF