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Labor force participation and the discouraged worker effect

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  • John Dagsvik

    ()

  • Tom Kornstad

    ()

  • Terje Skjerpen

    ()

Abstract

This article analyzes labor force participation with particular reference to the discouraged worker effect. Discouraged workers are those who will search for work when the labor market is tight but do not search for work when the labor market is slack because they consider their chances of finding a suitable job too low. The theoretical point of departure is a search model where the worker evaluates the expected utility of searching for work and decides to participate in the labor market if the expected utility of search exceeds the utility of not working. From this framework, we derive an empirical model for the probability that the worker will be out of the labor force, unemployed, or employed. The model is estimated on a sample of married and cohabitating women in Norway covering the period from 1988 to 2008. The results show that the discouraged worker effect is substantial. On average, about one-third of those who are out of the labor force are discouraged, according to our analysis. Copyright Springer-Verlag 2013

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 45 (2013)
Issue (Month): 1 (August)
Pages: 401-433

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Handle: RePEc:spr:empeco:v:45:y:2013:i:1:p:401-433

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Related research

Keywords: Discouraged workers; Labor force participation; Labor supply; Random utility modeling; C35; J21; J22; J64;

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References

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  1. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey: Part I," Economic Inquiry, Western Economic Association International, vol. 14(2), pages 155-89, June.
  2. Bolduc, Denis & Khalaf, Lynda & Yélou, Clément, 2010. "Identification robust confidence set methods for inference on parameter ratios with application to discrete choice models," Journal of Econometrics, Elsevier, vol. 157(2), pages 317-327, August.
  3. Hans G. Bloemen, 2005. "Job Search, Search Intensity, and Labor Market Transitions: An Empirical Analysis," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
  4. Arne Risa Hole, 2006. "A comparison of approaches to estimating confidence intervals for willingness to pay measures," Working Papers 008cherp, Centre for Health Economics, University of York.
  5. Benati, Luca, 2001. "Some empirical evidence on the 'discouraged worker' effect," Economics Letters, Elsevier, vol. 70(3), pages 387-395, March.
  6. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  7. Blundell, Richard & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," Economic Journal, Royal Economic Society, vol. 97(388a), pages 44-64, Supplemen.
  8. James J. Heckman & Christopher J. Flinn, 1982. "New Methods for Analyzing Structural Models of Labor Force Dynamics," NBER Working Papers 0856, National Bureau of Economic Research, Inc.
  9. Krinsky, Itzhak & Robb, A Leslie, 1986. "On Approximating the Statistical Properties of Elasticities," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 715-19, November.
  10. Steinar Str�m & John K. Dagsvik, 2006. "Sectoral labour supply, choice restrictions and functional form," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(6), pages 803-826.
  11. John K. Dagsvik & Tom Kornstad & Terje Skjerpen, 2010. "Labor force participation and the discouraged worker effect," Discussion Papers 642, Research Department of Statistics Norway.
  12. John K. Dagsvik & Tom Kornstad & Terje Skjerpen, 2006. "Analysis of the discouraged worker phenomenon. Evidence from micro data," Discussion Papers 453, Research Department of Statistics Norway.
  13. Cem Baslevent & Ozlem Onaran, 2003. "Are Married Women in Turkey More Likely to Become Added or Discouraged Workers?," LABOUR, CEIS, vol. 17(3), pages 439-458, 09.
  14. Krinsky, Itzhak & Robb, A Leslie, 1990. "On Approximating the Statistical Properties of Elasticities: A Correction," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 189-90, February.
  15. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  16. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 347-68, September.
  17. Darby, Julia & Hart, Robert A. & Vecchi, Michela, 2001. "Labour force participation and the business cycle: a comparative analysis of France, Japan, Sweden and the United States," Japan and the World Economy, Elsevier, vol. 13(2), pages 113-133, April.
  18. Emerson, Jamie, 2011. "Unemployment and labor force participation in the United States," Economics Letters, Elsevier, vol. 111(3), pages 203-206, June.
  19. Sara Connolly, 1997. "A model of female labour supply in which supply is dependent upon the chances of finding a job," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1379-1386.
  20. Blundell, Richard & Ham, John & Meghir, Costas, 1998. "Unemployment, discouraged workers and female labour supply," Research in Economics, Elsevier, vol. 52(2), pages 103-131, June.
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Citations

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Cited by:
  1. Tom Kornstad & Ragnar Nymoen & Terje Skjerpen, 2012. "Macroeconomic shocks and the probability of being employed," Discussion Papers 675, Research Department of Statistics Norway.
  2. Giorgio Di Pietro & Toni Mora, 2011. "The effect of the l’Aquila earthquake on labour market outcomes," Working Papers 2011/41, Institut d'Economia de Barcelona (IEB).
  3. Majumder, Rajarshi, 2011. "Female labour supply in india: proximate determinants," MPRA Paper 43250, University Library of Munich, Germany, revised Oct 2012.
  4. John Dagsvik & Tom Kornstad & Terje Skjerpen, 2013. "Labor force participation and the discouraged worker effect," Empirical Economics, Springer, vol. 45(1), pages 401-433, August.
  5. Pål Boug & Ådne Cappelen & Torbjørn Eika, 2013. "The importance of the distribution sector for exchange rate pass-through in a small open economy. A large scale macroeconometric modelling approach," Discussion Papers 731, Research Department of Statistics Norway.

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