Labor Force Participation and Monetary Policy in the Wake of the Great Recession
In this paper, we provide compelling evidence that cyclical factors account for the bulk of the post-2007 decline in the U.S. labor force participation rate. We then pro- ceed to formulate a stylized New Keynesian model in which labor force participation is essentially acyclical during "normal times" (that is, in response to small or transitory shocks) but drops markedly in the wake of a large and persistent aggregate demand shock. Finally, we show that these considerations can have potentially crucial im- plications for the design of monetary policy, especially under circumstances in which adjustments to the short-term interest rate are constrained by the zero lower bound.
|Date of creation:||Jun 2013|
|Date of revision:|
|Contact details of provider:|| Postal: University of Tokyo 702 Faculty of Economics, The University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan|
Web page: http://www.e.u-tokyo.ac.jp/
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- Marianna Kudlyak & Felipe Schwartzman, 2012. "Accounting for unemployment in the Great Recession : nonparticipation matters," Working Paper 12-04, Federal Reserve Bank of Richmond.
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2011-03, Bar-Ilan University, Department of Economics.
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- Macunovich, Diane J., 2009. "Reversals in the Patterns of Women's Labor Supply in the U.S., 1976-2009," IZA Discussion Papers 4512, Institute for the Study of Labor (IZA).
- John Bound & Timothy Waidmann, 2002. "Accounting for Recent Declines in Employment Rates among Working-Aged Men and Women with Disabilities," Journal of Human Resources, University of Wisconsin Press, vol. 37(2), pages 231-250.
- Julie L. Hotchkiss & Fernando Rios-Avila, 2013. "Identifying Factors behind the Decline in the U.S. Labor Force Participation Rate," Business and Economic Research, Macrothink Institute, vol. 3(1), pages 257-275, June.
- Kevin J. Fox & Daniel Melser, 2014. "Non-Linear Pricing and Price Indexes: Evidence and Implications from Scanner Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(2), pages 261-278, 06.
- 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.
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