This paper shows that much of the decline in labor force participation of U.S. prime age men comes from “in-and-outs” – whom I define as men that temporarily leave the labor force. Individuals moving in and out of the labor force have been an understudied margin of labor supply and account for roughly one third of the decline in participation between 1977 and 2015. Most in-and-outs take an occasional short break in between jobs, but are otherwise continuously attached to the labor force. In-and-outs are also qualitatively different from long-term non-participants. Half of the rise of in-and-outs has come from married or cohabiting men and I show that this rise can be explained by a wealth effect from their partners' growing earnings, using variation in the growth of female wages across demographic groups. In addition, I find that changes in household structure can account much of the rest of the rise of in-and-outs. To capture both effects in a unified framework, I construct and estimate a dynamic model of labor supply and household formation. The model estimates imply that labor supply factors are responsible for nearly the entire rise of in-and-outs, while changes in labor demand have contributed little.
By how much does an extension of unemployment benefits affect macroeconomic outcomes such as unemployment? Answering this question is challenging because U.S. law extends benefits for states experiencing high unemployment. We use data revisions to decompose the variation in the duration of benefits into the part coming from actual differences in economic conditions and the part coming from measurement error in the real-time data used to determine benefit extensions. Using only the variation coming from measurement error, we find that benefit extensions have a limited influence on state-level macroeconomic outcomes. We use our estimates to quantify the effects of the increase in the duration of benefits during the Great Recession and find that they increased the unemployment rate by at most 0.3 percentage point.
We decompose the decline in coal production from 2008 to 2016 into the contributions of several sources. In particular, we estimate the effects of declining natural gas prices and the introduction of new environmental regulations along with several other factors, using both monthly state-level data and annual information on coal plant closings. This paper is the first to explicitly estimate the role of natural gas using data on gas and coal prices as well as the first to estimate the ex-post effect of environmental regulations on coal consumption over this period. We estimate that falling natural gas prices are responsible for 92% of the total decline in coal production over this period and environmental regulations account for an additional 6%, with other factors making small and offsetting contributions.
Unemployment insurance (UI) extensions can have broad effects on labor markets by changing search effort, creating or destroying jobs, and boosting aggregate demand. I analyze a natural experiment created by a federal UI extension enacted in the United States during the Great Recession and measure the effect on state-level employment. I exploit a feature of this UI extension whereby random sampling error in a national survey altered the duration of unemployment insurance in several states, resulting in random variation in the number of weeks of unemployment insurance available at the state level. Point estimates of the impact of this UI extension imply that unemployment insurance raises employment growth. Although I cannot conclusively rule out an elasticity of zero, I can rule out substantial negative effects. I also document several issues with previous attempts to measure the total effect of UI extensions on employment.
Traditional least squares estimates of the responsiveness of gasoline consumption to changes in gasoline prices are biased toward zero, given the endogeneity of gasoline prices. A seemingly natural solution to this problem is to instrument for gasoline prices using gasoline taxes, but this approach tends to yield implausibly large price elasticities. We demonstrate that anticipatory behavior provides an important explanation for this result. We provide evidence that gasoline buyers increase gasoline purchases before tax increases and delay gasoline purchases before tax decreases. This intertemporal substitution renders the tax instrument endogenous, invalidating conventional IV analysis. We show that including suitable leads and lags in the regression restores the validity of the IV estimator, resulting in much lower and more plausible elasticity estimates. Our analysis has implications more broadly for the IV analysis of markets in which buyers may store purchases for future consumption.
The labour force participation rate in the US has fallen dramatically since 2007. This column traces this decline to three main factors: the ageing of the population, cyclical effects from the Great Recession, and an unexplained portion, which might be due to pre-existing trends unrelated to the first two. Of these three, the ageing of the population plays the largest role since it is responsible for half of the decline. Taken together, these factors suggest a roughly stable participation rate in the short-term, followed by a longer-term decline as the baby boomers continue to age. However, policy can play a meaningful role in mitigating this trend.