Incorporating the Participatory Margin When Teaching the Bathtub Model of the Labor Market

Abstract

The textbook bathtub model attributes a minor role to labor force participation. Recent empirical research shows that participation accounts for around one-third of the fluctuations in unemployment. This article outlines a for introducing the intermediate macroeconomics student to an augmented bathtub model, enhancing the student's understanding of how participation impacts the unemployment rate within a dynamic context. Further, the flow-based approach correctly demonstrates the mild counter-cyclicality of labor market participation. International evidence is analyzed by utilizing available labor market flow data for the US and the UK. Finally, a pedagogically effective simulation exercise incorporating a spreadsheet technique is demonstrated.