Are being unemployed and being out of the labor force distinct states?: A psychological approach

Abstract

Clark and Summers (1979) found a high rate of transition between unemployed and out of the labor force status. These findings led them to conclude that “many of those classified as not in the labor force are functionally indistinguishable from the unemployed.” Flinn and Heckman (1982,1983) questioned the validity of the conclusion reached by Clark and Summers. Heretofore, the debate between Clark and Summers and Flinn and Heckman over whether the two forms of nonemployment are distinct states has been conducted by examining transition probabilities and observable external characteristics. Unfortunately, the narrowness of the debate may have prevented this issue from being resolved. Psychologists have offered several explanations that seek to establish how experiences such as joblessness can lead to a deterioration in psychological health. For instance, unemployment may damage a person's locus of control, a concept that accounts for perceptions of personal efficacy, leaving them with a sense of helplessness. Although the psychological status of individuals in the two states of joblessness may differ, due to their respective rationales for withdrawal from the labor force, this possibility has yet to be investigated. This paper uses data from the National Longitudinal Survey of Youth (NLSY) to examine whether a difference in psychological well-being exists between the unemployed and labor force drop outs. We find some evidence that joblessness fosters feelings of externality. In addition, we also find evidence in favor of the stages of psychological impairment theory. Moreover, as the duration of joblessness advances so do feelings of helplessness. Finally, on balance, we offer evidence on the psychological status of the jobless that is consistent with the view of Clark and Summers that the two forms of joblessness are effectively indistinguishable.