Essays on the Macroeconomics of Labor Markets

Abstract

Chapter 1 documents that much of the decline in labor force participation of U.S. prime age men comes from "in-and-outs"---who I define as men who temporarily leave the labor force. Individuals moving in and out of the labor force have been an understudied margin of labor supply but account for at least one fifth of the decline in participation between 1977 and 2015. Most in-and-outs are in the labor force for the large majority of their career, but take an occasional short break in between jobs. In-and-outs are distinct from unemployed individuals, experiencing no loss of future income as a result of their time out of the labor force, and represent a distinct margin of labor supply from long-term labor force dropouts. Examining explanations for the rise of in-and-outs, I find little evidence to suggest that changes in labor demand are responsible. Chapter 2 investigates whether changes in household structure---specifically the type of household and composition of household labor supply---can explain part of the decline in labor force participation among prime age men in the U.S. Focusing on the decline in participation due to in-and-outs documented in Chapter 1, I find that half of the decline has come from married or cohabiting men, and I show that this portion of the decline can be explained by a wealth effect from their partners' growing earnings, using variation in the growth of female wages across demographic groups. Additionally, I find that changes in household structure, particularly from young men increasingly living with their parents, account for much of the rest of the decline in participation. To examine both effects within 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 decline in participation due to in-and-outs, while changes in labor demand have contributed little. Chapter 3 is based on joint work with Gabriel Chodorow-Reich and Loukas Karabarbounis. We ask 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 apply our estimates to 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.