A Decline in the Desire to Work

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from NCPA,

A recent study published by the National Bureau of Economic Research argues that a key aspect of the U.S. labor market is due to changes in the composition of the nonparticipation pool. The decline primarily reflected reductions for prime age females and young people. Researchers Regis Barnichon and Andrew Figura purport that it is not clear that demographics alone are responsible for these trends and seeked to supplement the often cited aging baby boom generation as the possible factor.

In particular, the study found:

– The share of nonparticipants who report wanting to work declined over the past 35 years, with a particularly strong decline in the second-half of the 90s.
– A decline in desire to work lowers both participation and unemployment because a nonparticipant who wants to work has both a higher probability of entering the labor force and a higher probability of joining unemployment.

Taken together with the aging population theory, this lower desire to work can account for the bulk of low-frequency movements in unemployment since the late 60s.

Findings suggest that the mid-90s “welfare to work” reforms such as the 1993 EITC expansion and the 1996 AFDC/TANF reform played an important role in lowering desire to work among nonparticipants. Using a cross-sectional estimate, the findings imply:

– Changes in the provision of welfare and social insurance explain about 60 percent of the decline in desire to work among prime-age females.
– Difference-in-difference estimates attribute between 50 and 70 percent of the decline in mothers desire to work to the welfare reforms.

These findings show that a key aspect of the U.S. labor market is the presence of time-varying compositions across the nonparticipant pool. It documents a decline in the share of nonparticipants who report wanting to work, and 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.

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