A new look at the discouragement and the added worker hypotheses : applying a trend-cycle decomposition to unemployment

"Using German data this study applies an unobserved-components approach to disentangle the unemployment rate into a (stochastic) trend and a cyclical part and to estimate the influence of these components on labor participation. The persistent trend component of unemployment, which triggers permanent reactions of the workers, is likely connected to a structural discouragement effect. The cyclical component, which reflects more fluctuant changes, can be linked to a shorter-term added worker effect. By splitting up the participation effect of changes in the unemployment rate our analysis differs profoundly from previous studies that present the net of both or only a single effect. For the total working population both a discouragement and an added worker effect were identified. In detailed analyses we find that the former was relevant for older workers, whereas the latter especially concerns prime aged and younger females. As many OECD countries are facing an ageing population as well as rising importance of women in the labor market, these age- and gender-specific results might be of particular interest." (Author's abstract, IAB-Doku) ((en))