The dynamics of labor force participation: Is all quiet on the Appalachian front?

Abstract

This study examines the divergence and synchronicity of labor force participation rate (LFPR) dynamics across the USA. Using a dynamic factor model with time-varying stochastic volatility, we decompose each state’s LFPR into a national, regional, and state-specific latent factor. We find significant time variation in our factors and heterogeneous labor market responses and relative sensitivities. Our results show that, save for West Virginia, there is no strong Appalachian regional component, and instead, the national and state-specific components explain much of the variation in state LFPRs. Our results suggest the need for more targeted and localized labor market policies during periods of divergence in LFPRs (i.e., recessions and shocks) and federal policies during national economic booms or periods of recovery.