Unemployment and Nonemployment: Heterogeneities in Labor Market States

Abstract

The determination of how to distinguish between unemployment and nonparticipation is important and controversial. The conventional approach employs a priori reasoning together with self-reported current behavior. This paper employs an evidence-based classification of labor force status using information about the consequences of the behavior of the nonemployed. We find that marginal attachment-defined as desiring work, although not searching-is a distinct labor market state, lying between those who do not desire work and the unemployed. Furthermore, important heterogeneities exist within these nonemployment states. Two subsets of nonparticipants-both engaged in waiting-display behavior similar to the unemployed. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.