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<p>Against the recent historical backdrop, wherein there is some fear that the adverse labor market effects of the Great Recession are permanent, this study revisits the academic literature on the impact of economic freedom on labor force participation rates in the U.S. In revisiting this strand of the literature that has previously focused mainly on the role played by <i>labor</i> market freedoms, we explore, using panel data for all 50 states from 2006 through 2022 (<i>n</i> = 850), the relationship between states’ <i>overall</i> levels of economic freedom and state-level labor force participation rates while controlling for household incomes, unemployment, poverty alleviation programs and other variables that are measured at the state level. Fixed effects regressions suggest that improvements in state-level economic freedom are associated with elevating their labor force participation rates by 1.2% to 3.1%, <i>ceteris paribus</i>. Lastly, when adopting a more causal inverse probability weighting approach (IPW), wherein noteworthy increases in state-level economic freedom (e.g., increases exceeding one point on the scale) are linked to changes in labor force participation rates, we find that exceeding one point on the scale is associated with labor force participation rates that are 2.1% higher.</p>

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Does Greater Economic Freedom Elevate the Labor Force Participation Rate? State-Level Panel Data Evidence for the U.S.

  • 期刊论文

  • 发表日期：

    2025年10月16日

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  • Richard J. Cebula,
  • Steven B. Caudill,
  • Franklin G. Mixon Jr.,
  • Kamal P. Upadhyaya

摘要

Against the recent historical backdrop, wherein there is some fear that the adverse labor market effects of the Great Recession are permanent, this study revisits the academic literature on the impact of economic freedom on labor force participation rates in the U.S. In revisiting this strand of the literature that has previously focused mainly on the role played by labor market freedoms, we explore, using panel data for all 50 states from 2006 through 2022 (n = 850), the relationship between states’ overall levels of economic freedom and state-level labor force participation rates while controlling for household incomes, unemployment, poverty alleviation programs and other variables that are measured at the state level. Fixed effects regressions suggest that improvements in state-level economic freedom are associated with elevating their labor force participation rates by 1.2% to 3.1%, ceteris paribus. Lastly, when adopting a more causal inverse probability weighting approach (IPW), wherein noteworthy increases in state-level economic freedom (e.g., increases exceeding one point on the scale) are linked to changes in labor force participation rates, we find that exceeding one point on the scale is associated with labor force participation rates that are 2.1% higher.