Changes in economic activity: The role of age and education

Loichinger, E. & Prskawetz, A. (2017). Changes in economic activity: The role of age and education. Demographic Research 36 1185-1208. 10.4054/DemRes.2017.36.40.

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Abstract

Background: Between 2000 and 2010, the labor force participation (LFP) of European men stayed mostly constant, whereas the participation of women continued to increase. Participation rates of people close to normal retirement ages rose almost universally. At the same time, the education composition shifted toward higher levels of educational attainment and education-specific differentials in economic activity persisted.

Objective: The aim of the paper is to understand the extent to which developments of LFP rates between 2000 and 2010 in selected European countries can be explained by age-specific and education-specific changes in participation rates, as compared to changes in populations’ structural composition by age and education.

Methods: We apply a decomposition methodology that allows us to disentangle changes in age- and education-specific LFP rates from changes in the age and educational structure of the population.

Results: Our results show that LFP rates of adult women would have increased even more, had it not been for the downward pressure from the shift in the age composition toward older age groups with relatively lower levels of participation. This downward pressure also depressed male participation. The increase in participation among older people is mainly explained by participation increases among those with nontertiary education and is reinforced by a general shift toward higher levels of educational attainment.

Contribution: Beyond changes in the age structure, we quantify the role of compositional changes by educational attainment. Our results indicate that labor supply may not decrease to the extent expected due to population aging, given educational expansion and education-specific patterns of economic activity.

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