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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.

Suggested Citation

  • Johann Fuchs & Enzo Weber, 2013. "A new look at the discouragement and the added worker hypotheses: applying a trend--cycle decomposition to unemployment," Applied Economics Letters, Taylor & Francis Journals, vol. 20(15), pages 1374-1378, October.
  • Handle: RePEc:taf:apeclt:v:20:y:2013:i:15:p:1374-1378
    DOI: 10.1080/13504851.2013.812777
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    References listed on IDEAS

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    1. Olivier Filatriau & Frédéric Reynès, 2012. "A new estimate of discouraged and additional worker effects on labor participation by sex and age in OECD countries," Sciences Po publications 2012-09, Sciences Po.
    2. Agbola, F. W., 2005. "Integrating Hidden Unemployment in the Measurement of Unemployment in Selected OECD Countries," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 5(2).
    3. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09j0h18ghk9 is not listed on IDEAS
    4. Benati, Luca, 2001. "Some empirical evidence on the 'discouraged worker' effect," Economics Letters, Elsevier, vol. 70(3), pages 387-395, March.
    5. Österholm, Pär, 2010. "Unemployment and labour-force participation in Sweden," Economics Letters, Elsevier, vol. 106(3), pages 205-208, March.
    6. 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 2008 - 2015 236, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    7. Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 11-37, January.
    8. Schmerer, Hans-Jörg, 2012. "Skill-biased labor market reforms and international competitiveness," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-39.
    9. 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.
    10. 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, vol. 78(311), pages 523-545, July.
    11. Tano, Doki K., 1993. "The added worker effect : A causality test," Economics Letters, Elsevier, vol. 43(1), pages 111-117.
    12. Michael Stops, 2014. "Job matching across occupational labour markets," Oxford Economic Papers, Oxford University Press, vol. 66(4), pages 940-958.
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    Citations

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    Cited by:

    1. 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].
    2. 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].
    3. 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].
    4. 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].
    5. repec:kap:poprpr:v:37:y:2018:i:1:d:10.1007_s11113-017-9451-3 is not listed on IDEAS
    6. 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].

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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