Unemployment, Gender and Labor Force Participation in Spain: Future Trends in Labor Market

quarter of 2012, almost three percentage points higher than one year earlier and almost 12 percentage points higher than at the end of 2008. Although the exponential growth of Spanish unemployment is mainly caused by a lower demand for labor, there is also a second cause, viz. an increased supply of labor, reflected by higher participation rates. In this paper we investigate how participation rates are affected by business cycle fluctuations, while accounting for different labor market behaviour of men and women. Based on an analysis using Spanish quarterly data over the period 1976-2012, we find evidence for a linear discouraged worker effect for men (i.e., decreasing participation rates during recessions), implying that male participation rates will continue to show a weak but sustained decrease as long as unemployment keeps rising. On the contrary, we find a significant ‘added’ worker effect (i.e., increasing participation rates during recessions) for women, but only when unemployment rates are below a certain threshold. Since the Spanish unemployment rate just recently (in 2012) passed this threshold, our results suggest that the added worker effect for women no longer applies and that, accordingly, the recent increase in female participation rates now comes to an end.