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

Author

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  • Sondermann, David
  • Petrakis, Corinne

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

Suggested Citation

  • Sondermann, David & Petrakis, Corinne, 2026. "Hidden in the aggregate: the cyclicality of EU labour force participation," Working Paper Series 3275, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20263275
    Note: 943715
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    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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