Drivers of Labor Force Participation in Advanced Economies: Macro and Micro Evidence
IMF Working Papers, June 25, 2018
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- Drivers of Labor Force Participation in Advanced Economies: Macro and Micro Evidence
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Bibliographic details
- Authors: Francesco Grigoli, Zsoka Koczan, Petia Topalova
- Published: June 25, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484361528.001
Executive summary and headline findings
- Despite significant headwinds from population aging in most advanced economies (AEs), labor force participation rates show divergent trajectories across countries and across groups of workers.
- Participation increased sharply among prime-age women and, more recently, older workers, but fell among the young and prime-age men.
- The bulk of the dramatic increase in labor force attachment of prime-age women and older workers in the past three decades can be explained by changes in labor market policies and institutions, structural transformation, and gains in educational attainment.
- Technological advances such as automation weighed on the labor supply of prime-age and older workers.
Determinants and channels (macro and micro evidence)
- Labor market policies and institutions:
- Changes in activation policy and other labor market policies are identified as major drivers of rising participation for prime-age women and older workers.
- Structural transformation:
- Shifts in industry employment ratios and structural change contributed to higher participation among some groups.
- Education:
- Gains in educational attainment are a key explanatory factor for increased labor force attachment among prime-age women and older workers.
- Technology and routinization:
- Automation and routinization-related technological advances exerted negative pressure on labor supply for prime-age and older workers.
Group-specific trends
- Prime-age women:
- Sharp increase in labor force participation over the past three decades, largely explained by policies, structural transformation, and education gains.
- Older workers:
- Participation increased more recently; similar drivers to prime-age women apply, though automation weighed against this increase.
- Prime-age men:
- Participation fell.
- Young workers:
- Participation fell.
Policy implications and recommendations
- Invest in education and training to bolster labor supply in the face of demographic change.
- Reform the tax system to improve labor supply incentives.
- Reduce early retirement incentives to raise participation among older workers.
- Improve the job-matching process to facilitate labor market attachment.
- Help individuals combine family and work life (for example, through family-friendly policies) to alleviate pressures from aging on labor supply.