Unemployment and Labor Force Participation

Abstract

bate are the proponents of the discouraged worker hypothesis. They maintain that a stimulus to aggregate demand not only would provide more employment opportunities but a swelling of the labor force by workers who earlier had either left the labor force when jobs became scarce or who were prevented from entering it at all. The existence of these workers would hinder the government in its efforts to reduce the unemployment rate. Conversely, advocates of the additional worker hypothesis assert that rising levels of unemployment bring additional or secondary workers pari passu into the labor market. As unemployment rates contract, this argument continues, these additional workers will leave the labor force. The purpose of this paper is to explore this controversy further. Both time series and cross section data