December 2013

Declining Labor Force Attachment and Downward Trends in Unemployment and Participation

Regis Barnichon and Andrew Figura

Abstract:

The U.S. labor market witnessed two apparently unrelated secular movements in the last 30 years: a decline in unemployment between the early 1980s and the early 2000s, and a decline in participation since the early 2000s. Using CPS micro data and a stock-flow accounting framework, we show that a substantial, and hitherto unnoticed, factor behind both trends is a decline in the share of nonparticipants who are at the margin of participation. A lower share of marginal nonparticipants implies a lower unemployment rate, because marginal nonparticipants enter the labor force mostly through unemployment, while other nonparticipants enter the labor force mostly through employment.

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Keywords: Unemployment rate, labor force participation rate, individuals marginally attached to the labor force

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Last Update: June 26, 2020