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Does Greater Economic Freedom Elevate the Labor Force Participation Rate? State-Level Panel Data Evidence for the U.S

Author

Listed:
  • Richard J. Cebula

    (University of Tennessee, Department of Economics)

  • Steven B. Caudill

    (University of Corsica, UMR-LISA)

  • Franklin G. Mixon Jr.

    (Columbus State University, Center of Economic Education)

  • Kamal P. Upadhyaya

    (University of New Haven, Department of Economics and Business Analytics)

Abstract

Against the recent historical backdrop, wherein there is some fear that the adverse labor market effects of the Great Recession are permanent, this study revisits the academic literature on the impact of economic freedom on labor force participation rates in the U.S. In revisiting this strand of the literature that has previously focused mainly on the role played by labor market freedoms, we explore, using panel data for all 50 states from 2006 through 2022 (n = 850), the relationship between states’ overall levels of economic freedom and state-level labor force participation rates while controlling for household incomes, unemployment, poverty alleviation programs and other variables that are measured at the state level. Fixed effects regressions suggest that improvements in state-level economic freedom are associated with elevating their labor force participation rates by 1.2% to 3.1%, ceteris paribus. Lastly, when adopting a more causal inverse probability weighting approach (IPW), wherein noteworthy increases in state-level economic freedom (e.g., increases exceeding one point on the scale) are linked to changes in labor force participation rates, we find that exceeding one point on the scale is associated with labor force participation rates that are 2.1% higher.

Suggested Citation

  • Richard J. Cebula & Steven B. Caudill & Franklin G. Mixon Jr. & Kamal P. Upadhyaya, 2025. "Does Greater Economic Freedom Elevate the Labor Force Participation Rate? State-Level Panel Data Evidence for the U.S," Journal of Labor Research, Springer, vol. 46(3), pages 116-129, December.
    • Handle: RePEc:spr:jlabre:v:46:y:2025:i:3:d:10.1007_s12122-025-09374-3
    DOI: 10.1007/s12122-025-09374-3
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    Keywords

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    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • P10 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - General
    • P40 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - General
    • P50 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - General

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