Asymmetry and Non-linearity in Discouraged and Added Worker Effects

We examine whether discouraged and added worker effects are state-dependent, business cycle phase-dependent, or change stochastically. We use quarterly LFS data for the 1995–2016 period for Poland. Labor force participation rate behaves non-linearly. The change is rapid and connected to the stable value of the cyclical unemployment rate. An unemployment rate higher than 13% implies a discouraged worker effect. Policy actions should aim to prolong the labor market activity (added worker effect) of females and older workers. Workers may be encouraged to reenter the labor market if their probability of finding a job is improved through active economic policy measures.