Working Paper

Wage Inequality and the Rise in Labor Force Exit: The Case of US Prime-Age Men

Abstract: This article offers the first empirical evidence that labor force exit rates rise when workers’ relative earnings fall. The model takes into account that a job not only provides economic security but also affirms a worker’s social status, which is tied to their relative position in the labor market. Based on the results, the decline in relative earnings for non-college prime-age men over the last four decades is estimated to have raised their labor force exit propensity by 0.49 percentage point, accounting for 44 percent of the total growth in their labor force exit rate during this period.

Keywords: labor force exit rates; prime-age male labor force participation; relative earnings; wage inequality;

JEL Classification: J21; J24; J31;

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Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Working Papers

Publication Date: 2022-09-01

Number: 22-16