A phenomenon observed in many labor markets is that the supply of labor appears to depend on business cycles. In other words, workers who are searching for work become "discouraged" under unfavorable business cycle conditions because they believe that their chances of finding an acceptable job...

Discouraged workers are those who have given up search due to (perceived) low chances of obtaining work. In this paper we first develop a model for the probability of being in the labor force as a function of the probability of getting an acceptable job offer. This model is based on standard...