Drivers of rising labour force participation – the role of pension reforms

With the ageing of the baby boom generation, the population share of the older working-age cohort, i.e. those between 55 and 74 years, has been gradually increasing. This age group has also seen a considerable rise in the labour force participation rate. This article examines the reasons behind the increase across euro area countries. Most euro area countries adopted substantial pension reforms in the last two decades to reduce risks to long-term fiscal sustainability. These pension reforms, complemented by other labour market reforms, can be expected to have boosted the labour force participation rate of older workers. While other factors, like better health conditions, rising life expectancy, higher educational levels, mainly among women, rising net wealth and labour market conditions have likely contributed, they alone cannot explain the particularly sharp rebound in the participation rate of older workers since 2000. The macroeconomic shock due to the on-going lock-down measures may, however, put further increases of the labour force participation rate at risk. JEL Classification: J11, J14, J21, J26, H55