Drivers of Labor Force Participation in Advanced Economies: Macro and Micro Evidence
Despite significant headwinds from population aging in most advanced economies (AEs),labor force participation rates show remarkably divergent trajectories both across countries and across diferent groups of workers. Participation increased sharply among prime-age womenand, more recently, older workers, but fell among the young and prime-age men. This pa-per investigates the determinants of these trends using aggregate and individual-level data.We find that the bulk of the dramatic increase in the labor force attachment of prime-agewomen and older workers in the past three decades can be explained by changes in labor mar-ket policies and institutions, structural transformation, and gains in educational attainment.Technological advances such as automation, on the other hand, weighed on the labor supplyof prime-age and older workers. In light of the dramatic demographic shifts expected in thecoming decades in many AEs, our findings underscore the need to invest in education andtraining, reform the tax system, reduce early retirement incentives, improve the job-matchingprocess, and help individuals combine family and work life in order to alleviate the pressuresfrom aging on labor supply.
IMF Working Papers