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A cohort-based model of labor force participation

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  • Bruce C. Fallick
  • Jonathan F. Pingle

Abstract

The probability that an individual participates in the labor force declines precipitously beyond age 50. This feature of labor supply suggests that ongoing shifts in the age distribution of the population will put substantial downward pressure on the aggregate labor force participation rate. However, the aggregate rate is also influenced by trends within age groups. Neglecting to model both within-group influences and shifting population shares will doom any estimate of aggregate labor supply. We develop a model that identifies birth cohorts' propensities to participate, uses these propensities to derive age-specific trends in participation rates, and explicitly incorporates the influence of shifting population shares in estimating aggregate labor force participation.

Suggested Citation

  • Bruce C. Fallick & Jonathan F. Pingle, 2006. "A cohort-based model of labor force participation," Finance and Economics Discussion Series 2007-09, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2007-09
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    References listed on IDEAS

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    1. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
    2. Daniel Aaronson & Daniel G. Sullivan, 2002. "Growth in worker quality," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Feb.
    3. Claudia Goldin, 2006. "The Quiet Revolution That Transformed Women's Employment, Education, and Family," American Economic Review, American Economic Association, vol. 96(2), pages 1-21, May.
    4. Frees, Edward W., 2003. "Stochastic forecasting of labor force participation rates," Insurance: Mathematics and Economics, Elsevier, vol. 33(2), pages 317-336, October.
    5. Stephanie Aaronson & Bruce Fallick & Andrew Figura & Jonathan Pingle & William Wascher, 2006. "The Recent Decline in the Labor Force Participation Rate and Its Implications for Potential Labor Supply," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(1), pages 69-154.
    6. David S. Loughran & Steven Haider, 2007. "Do the Elderly Respond to Taxes on Earnings? Evidence from the Social Security Retirement Earnings Test," Working Papers 223-1, RAND Corporation.
    7. John F. Henry & L. Randall Wray, 1998. "Economic Time," Macroeconomics 9811004, EconWPA.
    8. James Poterba & Joshua Rauh & Steven Venti & David Wise, 2007. "Defined Contribution Plans, Defined Benefit Plans, and the Accumulation of Retirement Wealth," NBER Chapters,in: Public Policy and Retirement, Trans-Atlantic Public Economics Seminar (TAPES), pages 2062-2086 National Bureau of Economic Research, Inc.
    9. Jaeger, David A, 1997. "Reconciling the Old and New Census Bureau Education Questions: Recommendations for Researchers," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 300-309, July.
    10. Jonathan F. Pingle, 2006. "Social Security's delayed retirement credit and the labor supply of older men," Finance and Economics Discussion Series 2006-37, Board of Governors of the Federal Reserve System (U.S.).
    11. Gustavsson, Magnus & Osterholm, Par, 2006. "The informational value of unemployment statistics: A note on the time series properties of participation rates," Economics Letters, Elsevier, vol. 92(3), pages 428-433, September.
    12. Julie L. Hotchkiss, 2005. "What’s up with the decline in female labor force participation?," FRB Atlanta Working Paper 2005-18, Federal Reserve Bank of Atlanta.
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    Citations

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    Cited by:

    1. Kudlyak, Marianna, 2013. "A Cohort Model of Labor Force Participation," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 25-43.
    2. Stephanie Aaronson & Tomaz Cajner & Bruce Fallick & Felix Galbis-Reig & Christopher Smith & William Wascher, 2014. "Labor Force Participation: Recent Developments and Future Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(2 (Fall)), pages 197-275.
    3. Balleer, Almut & Gómez-Salvador, Ramón & Turunen, Jarkko, 2009. "Labour force participation in the euro area: a cohort based analysis," Working Paper Series 1049, European Central Bank.
    4. repec:fip:fedreq:y:2011:i:4q:p:359-387:n:vol.97no.4 is not listed on IDEAS
    5. Bruce C. Fallick & Jonathan F. Pingle, 2007. "The effect of population aging on aggregate labor supply in the United States," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 52.
    6. Marianne Bitler & Hilary Hoynes, 2016. "The More Things Change, the More They Stay the Same? The Safety Net and Poverty in the Great Recession," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 403-444.
    7. Regis Barnichon & Christopher J. Nekarda, 2012. "The Ins and Outs of Forecasting Unemployment: Using Labor Force Flows to Forecast the Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 83-131.
    8. Bruce Fallick & Charles Fleischman & Jonathan Pingle, 2010. "The Effect of Population Aging on the Aggregate Labor Market," NBER Chapters,in: Labor in the New Economy, pages 377-417 National Bureau of Economic Research, Inc.
    9. Julie L. Hotchkiss, 2009. "Changes in the aggregate labor force participation rate," Economic Review, Federal Reserve Bank of Atlanta.
    10. Mark E. Schweitzer & Murat Tasci, 2013. "What constitutes substantial employment gains in today’s labor market?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Jun.
    11. Julie L. Hotchkiss, 2009. "Decomposing changes in the aggregate labor force participation rate," FRB Atlanta Working Paper 2009-06, Federal Reserve Bank of Atlanta.
    12. Claudia Münch & Sweder van Wijnbergen, 2009. "Education and Labor Market Activity of Women: An Age-Group Specific Empirical Analysis," Tinbergen Institute Discussion Papers 09-099/2, Tinbergen Institute.
    13. Jin Young Lee, 2014. "The Plateau in U.S. Women's Labor Force Participation: A Cohort Analysis," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 53(1), pages 46-71, January.
    14. Marianna Kudlyak & Thomas A. Lubik & Jonathan Tompkins, 2011. "Accounting for the non-employment of U.S. men, 1968-2010," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 359-387.
    15. Byrne, Stephen & O'Brien, Martin, 2016. "Understanding Irish Labour Force Participation," Economic Letters 01/EL/16, Central Bank of Ireland.
    16. repec:kap:iaecre:v:23:y:2017:i:3:d:10.1007_s11294-017-9646-8 is not listed on IDEAS
    17. Almut Balleer & Ramon Gomez-Salvador & Jarkko Turunen, 2014. "Labour force participation across Europe: a cohort-based analysis," Empirical Economics, Springer, vol. 46(4), pages 1385-1415, June.

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    Keywords

    Labor supply ; Labor market ; Labor economics;

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