Hidden in the aggregate: the cyclicality of EU labour force participation

David Sondermann and Corinne Petrakis

No 3275, Working Paper Series from European Central Bank

Abstract: We estimate the cyclical response of labour force participation to growth shocks across EU regions. We use a shift-share instrumental variable approach and local projections on EU Labour Force Survey microdata covering 15 countries and 114 regions over 2000–2020. The aggregate labour force participation rate is remarkably resilient, a clear contrast to the highly cyclical participation rate documented for the U.S. However, this resilience masks pronounced demographic heterogeneity. Men’s participation declines significantly while women’s remains stable, reflecting sectoral segregation and the added worker effect. Young workers exhibit the most persistent responses, with effects lasting up to eight years, consistent with hysteresis through human capital erosion. Less-educated and non-native workers bear disproportionate employment costs. The findings imply that aggregate slack measures may miss important distributional dimensions relevant for monetary, fiscal, and structural policy. JEL Classification: J21, E24, E32, R23

Keywords: Bartik instrument; demographic heterogeneity; labour force participation rate; local projections (search for similar items in EconPapers)
Date: 2026-08
New Economics Papers: this item is included in nep-eec
Note: 943715
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20263275

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