The purpose of this paper is to explore the microfoundations of the observed asymmetric movement in aggregate unemployment rates. Using U.S. data, we find that individual labor force participation responds asymmetrically to changes in local labor market conditions, consistent with the pattern of movements in the aggregate unemployment rate. Differences in the asymmetry and sensitivity of labor force participation decisions are found across gender, age, and education groups, and these differences are used to anticipate changes in the aggregate movements as population characteristics change over time.
JEL classification: J21, J22, E24, E32
Key words: asymmetric labor force participation decision, unemployment rate, business cycle, gender, education, age
The authors thank M. Laurel Graefe and Menbere Shiferaw for valuable research assistance. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.
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