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A new estimate of discouraged and additional worker effects on labor participation by sex and age in OECD countries

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  • Olivier Filatriau

    (INSEE)

  • Frédéric Reynès

    (Nederlandse Organisatie voor Toegepast Natuurwetenschappelijk Onderzoek)

Abstract

This article proposes a new approach to estimate the effect of the unemployment rate on the labor participation ratio by sex and age. OECD labor participation ratios are estimated within an unobservable component model with the Kalman filter. This allows for treating the trend of the participation rate as a stochastic time varying parameter. This improves the quality of the econometric results by allowing for a better identification of changes in the trend than the most common alternatives using determinist and logistic trends. Moreover the use of cross-section OECD circumvents the problem of the lack of long time series data. We find that OECD labor participation ratio are sensitive to the labor market situation in all sex and age categories and that the discouraged worker effect dominates the additional worker effect although the latter is clearly present for women.

Suggested Citation

  • 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.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09j0h18ghk9
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    References listed on IDEAS

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    1. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    2. Valérie Chauvin & Mathieu Plane, 2001. "2000-2040 : population active et croissance," Revue de l'OFCE, Presses de Sciences-Po, vol. 79(4), pages 235-259.
    3. Maloney, Tim, 1991. "Unobserved Variables and the Elusive Added Worker Effect," Economica, London School of Economics and Political Science, vol. 58(230), pages 173-187, May.
    4. Christophe Hurlin & Valérie Mignon, 2007. "Second Generation Panel Unit Root Tests," Working Papers halshs-00159842, HAL.
    5. Kodde, David A., 1988. "Unemployment expectations and human capital formation," European Economic Review, Elsevier, vol. 32(8), pages 1645-1660, October.
    6. Gerard Cornilleau & Henri Sterdyniak & Guillaume Allegre & Jérôme Creel & Sarah Guillou & Sandrine Levasseur & Catherine Mathieu & Frédéric Reynès & Elena Stancanelli & Vincent Touze, 2008. "Emploi des seniors : les leçons des pays de réussite," Sciences Po publications info:hdl:2441/6405, Sciences Po.
    7. Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 11-37, January.
    8. Heyer, Eric & Reynes, Frederic & Sterdyniak, Henri, 2007. "Structural and reduced approaches of the equilibrium rate of unemployment, a comparison between France and the United States," Economic Modelling, Elsevier, vol. 24(1), pages 42-65, January.
    9. Tano, Doki K., 1993. "The added worker effect : A causality test," Economics Letters, Elsevier, vol. 43(1), pages 111-117.
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    Cited by:

    1. 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.
    2. Johann Fuchs & Enzo Weber, 2017. "Long-term unemployment and labour force participation: a decomposition of unemployment to test for the discouragement and added worker hypotheses," Applied Economics, Taylor & Francis Journals, vol. 49(60), pages 5971-5982, December.

    More about this item

    Keywords

    labor force participation; unemployment; flexion effects; additional/discouraged worker effect; OECD; cross-section estimation; Kalman filter;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • 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

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