Discussion: Attachment and Discouragement

I have so far outlined how the transition process of agents must be different in employment compared to nonemployment in order to match aggregate flows in the data. As mentioned earlier, the need for searching types to be more persistent or inactive types to be less persistent in employment has a natural interpretation as at­tachment to or detachment from the labor force. The model is agnostic about the pos­sible sources of shocks to search activity and the mechanisms through which agents’ transitions change with employment state. I appeal to the literature on attachment to the labor force and detachment or discouragement to support this interpretation. As previously I established the nature in which participation decisions must change with employment, the question to try to answer from data is the presence and cor­relation with observable characteristics of such an effect in agents’ decisions at the micro level.

Labor force attachment seems a fitting story for the difference between em­ployed and nonemployed workers’ transitions in types. There is some evidence from studies of employment and labor market data to suggest that past employment expe­riences help to dictate agents’ future labor force participation. Ellwood (1982) finds that in labor force transitions of young men in the National Longitudinal Survey of Youth, unemployment and nonparticipation are particularly difficult to differentiate between for workers who are just entering the labor force. He attributes this difficulty to either discouragement or low attachment to the labor force, as many young work­ers spent extended periods of time in nonparticipation. After 4 years of being out of school, employment and unemployment increase (and nonparticipation decreases) dramatically. Abraham and Shimer (2001) show that the trend of increased unem­ployment duration is due to the increased labor force attachment of women. The topic of discouraged workers in unemployment is pervasive in the labor literature, though consistent evidence as to the size and importance of the phenomenon is less clear. Be- nati (2001) summarizes the mixed findings of the empirical literature on discouraged worker effects and provides some evidence for a significant effect from analyzing the components of the out-of-labor force population in the Current Population Survey.