AAEA Invited Presentation 2023

Abstract

Comovements in labor force participation rates (LFPRs) across U.S. counties have the potential to amplify labor market shocks on a wider scale. This study examines the dynamic effects of state, Metro/Non-Metro, and county labor market shocks on labor force participation rates in West Virginia. In the first stage, using a dynamic factor model, we find that non-metropolitan and county-specific components are dominant contributors to the observed variations in the change in West Virginia LFPRs. In the second stage, using a fixed effects panel model, we find county demographics, education levels, income, access to interstate highways, and industry composition are useful covariates for explaining the variance contributions of the state, metro/non-metro and county factors. Our results suggest the need for disparate labor market policies for metropolitan and non-metropolitan counties. Additionally, state-wide policies focusing on increasing income, supporting key industries and infrastructure, and encouraging college completion could increase employment and labor participation growth in West Virginia.