Publications séminaires GAINS

3 avril 2018 Idriss Fontaine (THEMA, Cergy)

présente (annulation à cause des grèves)

Uncertainty and Labor Force Participation

Abstract :

Is an increase in uncertainty able to generate a fall in labor force participation ? This paper provides some evidence indicating that the answer to this question is probably positive.
Through a lens of a structural VAR, I show that i) a surge in uncertainty leads to a decrease in participation which follows an u-shaped path, ii) uncertainty shocks account for a considerable proportion of participation fluctuations.
Then, I build a New Keynesian DSGE model with a frictional labor market, endogenous labor force and stochastic volatility. I show that the replication of the empirical comovements is not straightforward. Thus, a model with flexible prices gives counter-intuitive results. It gives rise to a strong precautionary saving motive inducing expansionary effects of uncertainty.
In contrast, a model with price stickiness is able to reproduce the negative empirical comovements. As firms postpone their hiring investments, labor market tightness decreases and the household responds by reducing the labor force.
I also show that monetary policy can have an important stabilizing role, while, wage rigidities greatly amplify the recessionary effects of uncertainty on output and participation.

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