FRBSF Economic Letters

Economic analysis for a general audience

Mary C. Daly, Joseph H. Pedtke, Nicolas Petrosky-Nadeau, and Annemarie Schweinert


Labor force participation among U.S. men and women ages 25 to 54 has been declining for nearly 20 years, a stark contrast with rising participation in Canada over this period. Three-fourths of the difference between the two countries can be explained by the growing gap in labor force attachment of women. A key factor is the extensive parental leave policies in Canada. If the United States could reverse the trend in participation of prime-age women to match Canada, it would see 5 million additional prime-age workers join the labor force.

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Working Papers

The latest in economic research

Nicolas Petrosky-Nadeau, Etienne Wasmer, and Philippe Weil

This paper studies the optimal sharing of value added between consumers, producers, and labor. We first define a constrained optimum. We then compare it with the decentralized allocation. They coincide when the price maximizes the expected marginal revenue of the firm in the goods market, an outcome of the competitive search equilibrium, and when the wage exactly offsets the congestion externality of firm entry in the labor market, which is the traditional Hosios condition. Under price and wage bargaining, this allocation is achieved under a double Hosios condition combining the logic of competitive search and Hosios efficiency. The consumer receives a share of the goodsmarket trading surplus equal to the amount of externality occasioned by its search activity and the worker receives a share of the labor match surplus to offset the externality of firm entry in the matching process. A calibration of the model to the US economy indicates that the labor market is near efficient, and free-entry of consumers leads to excess excess consumer market power in setting prices. Restoring efficiency leads to a modest change in welfare.

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