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A new look at the discouragement and the added worker hypotheses: applying a trend--cycle decomposition to unemployment

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  • Johann Fuchs
  • Enzo Weber

Abstract

This article proposes an unobserved components approach to disentangle the influence of unemployment on labour participation into a permanent and a cyclical part, connected to discouragement and added worker effect, respectively. By splitting up the participation effect of changes in the unemployment rate, our analysis differs profoundly from previous studies that present the net of both or only a single effect. The results for Germany confirm that both the discouragement and the added worker effect exist, but different age groups respond differently to permanent and transitory changes in the unemployment rate.

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File URL: http://hdl.handle.net/10.1080/13504851.2013.812777
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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 20 (2013)
Issue (Month): 15 (October)
Pages: 1374-1378

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Handle: RePEc:taf:apeclt:v:20:y:2013:i:15:p:1374-1378

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  1. Stops, Michael, 2012. "Job matching across occupational labour markets," IAB Discussion Paper 201227, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  2. James C. Morley & Charles R. Nelson & Eric Zivot, 2003. "Why Are the Beveridge-Nelson and Unobserved-Components Decompositions of GDP So Different?," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 235-243, May.
  3. Benati, Luca, 2001. "Some empirical evidence on the 'discouraged worker' effect," Economics Letters, Elsevier, vol. 70(3), pages 387-395, March.
  4. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," IAB Discussion Paper 201224, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  5. Österholm, Pär, 2009. "Unemployment and Labour Force Participation in Sweden," Working Paper, National Institute of Economic Research 113, National Institute of Economic Research.
  6. Tano, Doki K., 1993. "The added worker effect : A causality test," Economics Letters, Elsevier, vol. 43(1), pages 111-117.
  7. Giuseppe Carone & Declan Costello & Nuria Diez Guardia & Gilles Mourre & Bartosz Przywara & Aino Salomaki, 2005. "The economic impact of ageing populations in the EU25 Member States," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 236, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  8. Damon Clark, 2011. "Do Recessions Keep Students in School? The Impact of Youth Unemployment on Enrolment in Post‐compulsory Education in England," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 78(311), pages 523-545, 07.
  9. Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 3(1), pages 11-37, January.
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Cited by:
  1. Pauser, Johannes, 2013. "Capital mobility, imperfect labour markets, and the provision of public goods," IAB Discussion Paper 201309, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  2. Werner, Daniel, 2013. "New insights into the development of regional unemployment disparities," IAB Discussion Paper 201311, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  3. Vallizadeh, Ehsan & Muysken, Joan & Ziesemer, Thomas, 2013. "Migration, unemployment and skill downgrading : a specific-factors approach," IAB Discussion Paper 201313, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  4. Mönnig, Anke & Zika, Gerd & Maier, Tobias, 2013. "Trade and qualification : linking qualification needs to Germany's export flows," IAB Discussion Paper 201307, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  5. Weber, Enzo & Zika, Gerd, 2013. "Labour market forecasting : is disaggregation useful?," IAB Discussion Paper 201314, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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