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Discouraged Workers in Developed Countries and Added Workers in Developing Countries? Unemployment Rate and Labour Force Participation

  • Grace H.Y. Leea
  • Jaai Parasnis

Changes in the unemployment rate can have differing impacts on the labour force participation rate depending on the strength of the added worker effect and the discouraged worker effect. This paper documents the differences in the relationship between the unemployment rate and the labour force participation rate across a panel of developing countries and OECD countries. We employ a system GMM approach to control for and to establish the bi-directional causality between unemployment and labour force participation. We find that the discouraged worker effect does dominate in developed countries, while dominance of the added worker effect in developing countries leads to an increase in labour force in the face of rising unemployment.

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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 15-14.

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Length: 31 pages
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:mos:moswps:2014-15
Contact details of provider: Postal: Department of Economics, Monash University, Victoria 3800, Australia
Phone: +61-3-9905-2493
Fax: +61-3-9905-5476
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