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Labor Force Participation, Wages and Turbulence

Author

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  • Obiols-Homs, Francesc
  • Sánchez-Marcos, Virginia

Abstract

Labor force participation among prime-age men has decreased over the last three decades in the U.S. and it coincides with wage stagnation and declining return to tenure for this demographic group. We develop a search and matching model of the labor market in which participation decisions of the workers are likely to change their skill level through on-the-job learning and through deterioration during non-employment. We use this framework to quantitatively assess the implications of an increase in the probability of skill loss during non-employment spells 'turbulence', after Ljungqvist and Sargent, 1998). We find that the increase in turbulence not only provides a rationale for the decline in participation, but it is also consistent with the reduction in the return to tenure observed in the data.

Suggested Citation

  • Obiols-Homs, Francesc & Sánchez-Marcos, Virginia, 2026. "Labor Force Participation, Wages and Turbulence," CEPR Discussion Papers 21617, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21617
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    File URL: https://cepr.org/publications/DP21617
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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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