The cyclical resilience and determinants of the participation rate in Spain

One of the striking features of the Spanish labour market during the last economic crisis was the stability of the labour force, which held steady at around 23 million persons from 2008. This phenomenon is especially remarkable given that it occurred against a backdrop of sharply rising unemployment and a decline in the working-age population, stemming from the fall in the foreign population (see Chart 1). It also contrasts with what has happened in the Spanish economy in the past, when the response by the participation rate to a decline in economic activity has usually been stronger. This cyclical resilience of the labour force is important for a number of reasons: it may serve to support the economy’s growth potential; encourage wage adjustment in an adverse macroeconomic setting; and, insofar as it is concentrated among older workers, contribute to mitigating the negative impact of population ageing on economic growth and on the sustainability of the pension system. This article analyses the recent behaviour of the labour force in the Spanish economy. The cyclical pattern of the participation rate is examined in the second section, on the basis of the latest information available. The role of different determinants of the supply of labour in Spain is discussed in the third section and, finally, the conclusions are set out in the fourth section.