The UK labour force participation rate: business cycle and trend influences
In this paper the extent to which recent patterns in UK labour force participation have been influenced by trend and business cycle factors is investigated. A modelling strategy is proposed that pools the available micro and aggregate-level data, to produce a mutually consistent model of the trend and cyclical components of participation. A significant procyclical pattern is established, but some distinct trend influences on the participation rate are also identified. The approach allows for the construction of forecasts, which would be a useful input into the sort of macroeconometric models used by policymakers. The model outperforms some conventional macroeconometric forecasts in out-of-sample forecast tests.
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