April 27, 2012

Labor Productivity and Participation

Nicholas Bocovich, Advisor: Fahima Aziz

One of the primary purposes of economics is to find a way to maximize people’s satisfaction from the consumption of goods and services. Usually, in order to do this, one must enter the labor market to earn a living. However, due to either overwhelming costs in joining the labor market or a lack of benefit from joining, some people make the conscious decision to not participate in the labor market. There are many contributing factors to a decrease in the labor force participation rate, including wage and lack of jobs. However, I am mostly concerned with one potential factor: labor force productivity. In this project, I am examining the causality between labor force productivity and the labor force participation rate. This is to determine whether or not labor force productivity brings a decrease or increase in the labor force participation rate. To make this determination, I use data on both the micro and macro level. On both of these levels, I create multivariate linear models. Using these models and a collection of data, I determine the significance of productivity, as it relates to participation, as well as the significance of other explanatory variables interacting with productivity. I also determine how influential each variable is in changing participation and the accuracy of the overall model. This research has already been able to show that productivity and participation rate have some correlation. However, the degree of the causality between these variables has not yet been shown. I expect productivity to have a significant and positive influence in the participation rate. I also expect that interaction of gender and age will effect changes in labor productivity. At the end of my research, I hope to have a very accurate economic model in predicting labor productivity and labor participation.