Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
A participation externality occurs when vacancy creation depends on workforce composition. As marginal workers enter the labor market, they lower the average quality of the workforce. This suppresses vacancy creation but is not internalized by the new entrants. This paper studies how this externality interacts with search externalities and the efficacy of policies at addressing it. These externalities interact because either party may retain an inefficient share of the surplus and workforce composition affects the expected surplus. We show that when chosen optimally, minimum wages and unemployment insurance partially address both externalities, but minimum wages primarily affect participation, while unemployment insurance primarily affects search externalities.