Understanding Irish Labour Force Participation

This paper explores developments in the labour force participation rate in Ireland. Given the important role of labour supply in explaining Irish economic growth, we aim to identify the relative influence of structural and cyclical factors in the recent dynamics of Irish labour force participation. Using a number of empirical approaches our results highlight the role of age, nationality and gender on the participation rate. We also find that the recent decline in female participation is entirely a response to the stage in the economic cycle given the weaker labour market, whereas the fall in male and overall participation also reflects the influence of some structural factors. Accordingly a rise in the participation rate is to be expected in the near term as the economic recovery continues, and current measures of slack in the economy should account for this. Combining our results and various population projection scenarios, we show that policy actions to increase female participation may not in and of themselves yield significant changes in the aggregate trend participation rate over the medium term owing to the stronger influence of the falling male trend. Higher immigration is the most effective way of offsetting the expected decline in trend participation out to 2025.