Female Labour Force
One Way Stretch

It is widely believed that a number of people drop out of the labour force when the demand for labour slackens, 'discouraged' from job search by the lack of opportunities. If this is the case the labour force can be thought of as elastic - stretching in response to increases in labour demand and contracting to accommodate depressed conditions. This implies that the actual size of the labour force varies more than the potential, and that projections of the actual labour force should lie below those of the potential labour force during recessions. This gap represents unemployment 'hidden' outside the conventionally observed labour force.

In Discussion Paper No 64, Sue Owen and CEPR Research Fellow Heather Joshi attempt to establish the number of women aged 20-59 who were affected by such demand-induced fluctuations in the size of the labour force in post-war Britain. They take time series evidence from decennial censuses and 3 biennial Labour Force Surveys. Annual National Insurance Records were also used to construct a model which simulates how much the female labour force would have changed between selected points in time had the pressure of demand remained constant, given what is known about long-run trends and changing demographic factors. Joshi and Owen compared these simulated changes in the potential labour force, age by age, with an estimate of how much the actual participation rate changed over the same period. During periods when the pressure of demand deteriorates, one would expect the potential increase to exceed the actual increase if a 'discouraged worker effect' had been in operation.

Joshi and Owen find no strong evidence for a large and consistent 'discouraged worker' effect for women in this age group. They observe that female labour supply may have stretched in response to long-run growth in demand, but showed no sign of it shrinking much when growth declined. They estimate that the most recent recession removed approximately 100,000 women aged 20-59 from the measured labour force for each additional million unemployed and claiming benefit. This estimate is well below that adopted in the official labour force projections made in 1984, and is also less than can be inferred from some cross-section evidence.

The authors conclude that there is very little evidence to support the adjustment of the estimated potential labour force to reflect changes in the level of demand. Research efforts should be devoted to surveys which better reveal non-workers who are potentially available for employment, and to identifying the 'hidden unemployed'. These include women in part-time employment, who are obliged because of a lack of better opportunities to undertake work which does not fully utilize their potential.


Does Elasticity Retract? The effect of Recession on Women's Labour Force Participation
H Joshi and S Owen

Discussion Paper No. 64, April 1985 (HR)