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Age structure and the UK unemployment rate

  • Richard Barwell
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    The proportion of youths in the labour force has fallen dramatically over the past 15 years, following the collapse in the fertility rate in the 1970s ('the baby bust'). Given that youths always have higher unemployment rates than adults, this shift in the composition of the labour force towards those with lower unemployment rates may have been responsible for a fall in the aggregate unemployment rate. Using data from the Labour Force Survey, it is estimated that about 55 basis points of the 565 basis point fall in the UK unemployment rate between 1984 and 1998 can be accounted for by changes in the age structure of the labour force. Changes in the fraction of each age group that is economically active will also affect the composition of the labour force (and therefore potentially the unemployment rate); however, even controlling for changing labour force participation rates by age, demographically driven shifts in the age composition of the labour force still explain about 40 basis points of the fall in the unemployment rate. Finally, it is estimated that demographic change will have a negligible impact on the unemployment rate over the next decade, on the basis of recent labour force projections.

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    Paper provided by Bank of England in its series Bank of England working papers with number 124.

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    Date of creation: Dec 2000
    Date of revision:
    Handle: RePEc:boe:boeewp:124
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    1. Alan Manning, 1998. "Movin on up: interpreting the earnings experience profile," LSE Research Online Documents on Economics 20294, London School of Economics and Political Science, LSE Library.
    2. Lawrence H. Summers, 1986. "Why is the Unemployment Rate So Very High near Full Employment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 339-396.
    3. Metcalf, David, 1999. "The Low Pay Commission and the National Minimum Wage," Economic Journal, Royal Economic Society, vol. 109(453), pages F46-66, February.
    4. Oswald, Andrew J & Turnbull, Peter J, 1985. "Pay and Employment Determination in Britain: What Are Labour," Oxford Review of Economic Policy, Oxford University Press, vol. 1(2), pages 80-97, Summer.
    5. Farber, Henry S, 1994. "The Analysis of Interfirm Worker Mobility," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 554-93, October.
    6. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
    7. George L. Perry, 1970. "Changing Labor Markets and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(3), pages 411-448.
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