Equilibrium Labor Force Participation and Wage Dispersion

An important gap in the literature on labor market search is that the majority of studies focus on within labor-market transitions, while ignoring workers' decisions to

participate in or leave the labor force. This paper develops a model of equilibrium search which simultaneously determines workers' labor market participation/exit decisions, and job acceptance rules. Workers revise their labor force entry and exit strategies through occasional shocks to the utility of non-work options. The model is applied to the labor market experience of black and white high school graduate women from the NLSY79 to discern the sources of female black-white labor market inequality in wages and participation.

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