Discouraged workers in developed countries and added workers in developing countries? Unemployment rate and labour force participation |
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| Institution: | 1. Department of Economics, School of Business, Monash University, Jalan Lagoon Selatan, Bandar Sunway, 46150 Selangor, Malaysia;2. Department of Economics, Faculty of Business and Economics, Monash University, Berwick Campus, 100 Clyde Road, Berwick, VIC 3806, Australia;1. Department of Economics, California State University, Fullerton, Fullerton, CA 92834, USA;2. Department of Economics and Finance, University of New Orleans, New Orleans, LA 70148, USA;1. University of Westminster, 309 Regent Street, London W1B 2HW, UK;2. Independent researcher, Italy;1. School of Economics, Finance and Property, Faculty of Business and Law, Curtin University, Bentley, WA 6102, Australia;2. Department of Economics, School of Business, Monash University, Bandar Sunway, 47500 Subang Jaya, Selangor, Malaysia;3. School of Economics, Finance and Property, Faculty of Business and Law, Curtin University, Bentley, WA 6102, Australia;4. Asian Disaster Preparedness Center, Bangkok 10400, Thailand |
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| Abstract: | Changes in the unemployment rate can have differing impacts on the labour force participation rate depending on the strength of the added worker effect and the discouraged worker effect. This paper documents the differences in the relationship between the unemployment rate and the labour force participation rate across a panel of developing countries and OECD countries. We employ a system GMM approach to control for and to establish the bi-directional causality between unemployment and labour force participation. We find that the discouraged worker effect does dominate in developed countries, while dominance of the added worker effect in developing countries leads to an increase in labour force in the face of rising unemployment. |
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