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Labor force participation and the discouraged worker effect

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This paper analyzes labor force participation with particular reference to the discouraged worker effect. Discouraged workers are those who do not search for work because they view their chances of finding a suitable job as too low. The theoretical point of departure is a search model where the worker evaluates the expected utility of searching for work and decides to participate in the labor market if the expected utility of the search exceeds the utility of not working. From this framework we derive an empirical model for the probability that the worker will be unemployed or employed as a function of the probability of getting an acceptable job, given that the worker searches for work. The model is estimated on a sample of married and cohabitating women in Norway covering the period from 1988 to 2008. The results show that the discouraged worker effect is substantial. On average, about one third of those who are out of the labor force are discouraged according to our analysis.

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  • John K. Dagsvik & Tom Kornstad & Terje Skjerpen, 2010. "Labor force participation and the discouraged worker effect," Discussion Papers 642, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:642
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    More about this item

    Keywords

    Discouraged workers; Labor force participation; Random utility modeling;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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