Stochastic modeling of labor supply and discouraged worker behavior

Abstract

Discouraged workers are those who have given up searching for work because of the (perceived) low chances of obtaining it. In this paper we develop a stochastic structural econometric framework for analyzing discouraged worker behavior based on the theory of job search and the notion of probabilistic rationality and risky choice. Subsequently, we conduct an empirical analysis of immigrant women from non-Western countries and women born in Norway, using microdata on labor force participation and unemployment. We find that the discouraged worker effect is particularly high among immigrant women with low wage rates and many children.