Why Has Labour Market Participation Not Fully Recovered in Ireland since the Recession?

In recent years, the Irish economy has experienced a sustained expansion phase and the unemployment rate is approaching pre-crisis levels. However, ten years after the crisis, the labour market participation rate, a crucial determinant of labour supply, has not recovered as strongly as expected. Ireland stands out from the EU average, where the activity rate has increased continuously. The pre-crisis peak in the Irish activity rate mainly reflected increased female participation from a low base and the expansion of the labour force through immigrants, in particular EU citizens, who displayed a higher activity rate than Irish nationals. Two structural factors account for the sharp decline in activity observed since 2007. The activity rate of young people (15-24), which used to be extremely high, has converged towards the EU average, as young people have been staying longer in education and training. In addition, the age distribution of the working age population is less supportive. The share of those aged 25 34, whose activity rate is typically highest, has shrunk, while that of individuals over 55, whose activity rate is typically lower, is increasing. Various policy levers could bolster the activity rate. Active labour market policies could improve access to employment for inactive people. As female labour market participation remains far below that of men, bringing more women into the workforce could partly offset the sluggishness of the activity rate. The further increase in the state pension age planned over the next decade could also encourage longer careers. As the impact of these policies would likely materialise only slowly, any further increase in the activity rate is most likely to be driven by net inward migration in the short run.