Declining Labor Force Attachment and Downward Trends in Unemployment and Participation

• BSE Working Paper: 110213 | September 15
• Keywords: marginal participant , want a job , stock-flow decomposition
• JEL codes: J6, E24
• marginal participant
• want a job
• stock-flow decomposition

The US 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- ‡ow 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.