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Declining Desire to Work and Downward Trends in Unemployment and Participation

Regis Barnichon, Andrew Figura

Chapter in NBER book NBER Macroeconomics Annual 2015, Volume 30 (2016), Martin Eichenbaum and Jonathan A. Parker, editors (p. 449 - 494)
Conference held April 17-18, 2015
Published in June 2016 by University of Chicago Press
© 2016 by the National Bureau of Economic Research
in NBER Book Series NBER Macroeconomics Annual

This paper argues that a key aspect of the US labor market is the presence of time-varying heterogeneity across nonparticipants. We document a decline in the share of nonparticipants who report wanting to work, and we argue that that decline, which was particularly strong in the second half of the 90s, is a major aspect of the downward trends in unemployment and participation over the past 20 years. A decline in the share of "want to work" nonparticipants lowers both the participation rate and the unemployment rate, because a nonparticipant who wants to work has (i) a higher probability of entering the labor force (compared to other nonparticipants), and (ii) a higher probability of joining unemployment conditional on entering the labor force. We use cross-sectional variation to estimate a model of nonparticipants' propensity to want to work, and we find that changes in the provision of welfare and social insurance, possibly linked to the mid-90s welfare reforms, explain about 50 percent of the decline in desire to work among nonparticipants.

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Document Object Identifier (DOI): https://doi.org/10.1086/685969

This chapter first appeared as NBER working paper w21252, Declining Desire to Work and Downward Trends in Unemployment and Participation, Regis Barnichon, Andrew Figura
Commentary on this chapter:
  Comment, Richard Rogerson
  Comment, Robert E. Hall
  Discussion,
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