New research analyses participation rates in the Irish Labour Force

• Decline in female participation from pre-recession peak is entirely a response to the stage in the economic cycle
• Fall in male and overall participation also reflects the influence of structural factors
• In the medium term a decrease in trend participation is to be expected without policy initiatives and/or higher immigration

The Central Bank publishes new research that analyses the labour force participation rate in Ireland.  The Research Technical Paper and accompanying Economic Letter ‘Understanding Irish Labour Force Participation’ assess the extent to which the decline in the participation rate from its pre-recession peak is structural - that is, driven by demographics and societal norms and institutions - or a cyclical response to the downturn in the economy during the financial crisis.

Given the significant role of labour supply in explaining Irish economic growth, and the different policy responses that may be required depending on the causes of the decline in the participation rate, it is important for policymakers to understand the relative influence of these structural and cyclical factors.

The research examines the role of age, birth year, nationality and gender as drivers of the participation rate.  The authors find that the decline in female participation from its pre-recession peak is entirely a response to the stage in the economic cycle given the weaker labour market.  In contrast they found the fall in male and overall participation also reflects the influence of some structural factors, including the lower tendency of younger males to participate and the smaller proportion of younger males in the population due to the lower birth-rate in the mid/late 1980, which weigh on the long-term trend rate.

According to these publications, a rise in the participation rate is to be expected in the near term as the economic recovery continues given that the current participation rate is below trend.  However, combining the results and population projection scenarios shows that the trend rate itself is set to decline over the medium term, which all else being equal would constrain actual and potential GDP growth.  Policy actions to increase female participation, while beneficial, may not in and of themselves significantly offset this decline in the aggregate trend participation rate owing to the stronger influence of the falling male trend.  Higher immigration is the most effective way of offsetting the expected decline in trend participation out to 2025.

Library of Research Technical Papers

Library of Economic Letters