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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
The Effects of Downturns on Labour Force Participation
Evidence and Causes
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- Romain Duval1, Mehmet Eris1, Davide Furceri1
- Author Affiliations
- 1: OECD, France
- 21 juin 2011
- Bibliographic information
This paper uses an impulse-response function approach to assess the magnitude and persistence of the effects of downturns on labour force participation for a sample of 30 countries over the period 1960-2008. Past severe recessions appear to have had a significant and persistent impact on participation, while moderate downturns did not. The aggregate participation rate effect of severe downturns peaked on average at about 1½ to 2½ percentage points five to eight years after the cyclical peak, and was still significant after almost a decade. Youths and older workers account for the bulk of this effect. Institutional and policy settings are found to be an important factor having shaped the response of participation to economic downturns. In particular, early retirement incentives embedded in old-age pension schemes and other social transfer programmes are found to amplify the responsiveness of older workers’ participation to economic conditions. However, the findings in this paper do not seem to apply to the most recent crisis, partly because the labour market situation did not deteriorate as much as the magnitude of the recession would have suggested in a number of OECD countries.
- crisis, labour force participation, retirement, downturn, recession, hysteresis
- Classification JEL:
- C23: Mathematical and Quantitative Methods / Single Equation Models; Single Variables / Panel Data Models; Spatio-temporal Models
- E32: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Business Fluctuations; Cycles
- H55: Public Economics / National Government Expenditures and Related Policies / Social Security and Public Pensions
- J21: Labor and Demographic Economics / Demand and Supply of Labor / Labor Force and Employment, Size, and Structure
- J26: Labor and Demographic Economics / Demand and Supply of Labor / Retirement; Retirement Policies