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Abstract
Despite the acceleration in population aging in almost all advanced economies over the past decade, aggregate labor force participation rates show divergent trajectories. Headline numbers also hide strikingly different shifts in the labor force attachment of different groups of workers: participation has increased among prime-age women and, more recently, older workers, but it has fallen among the young and among prime-age men. This chapter finds that aging and the drag from the global financial crisis can explain a significant share of the decline in the participation of men during the past decade. However, the rising participation of women underscores the importance of other factors in shaping participation decisions. The analysis suggests that labor market policies and institutions, together with structural changes and gains in educational attainment, account for the bulk of the dramatic increase in the labor force attachment of prime-age women and older workers in the past three decades. At the same time, technological advances such as automation, while beneficial for the economy as a whole, have weighed moderately on participation rates. These findings highlight the considerable scope for policies to counteract the forces of aging by enabling those who are willing to work to do so. Investing in education and training, reforming the tax system, and reducing incentives to retire early—along with stronger policies that improve the job-matching process and help workers combine family and work life—can encourage people to join and remain in the workforce. Ultimately, however, the dramatic shifts in demographic structure could overwhelm the ability of policies to mitigate the effects of aging on labor force participation, which underscores the need to rethink migration policies to boost labor supply in advanced economies.
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