Report
The importance of the participation rate
In the United States and the euro zone there is currently a significant rise in the participation rate (in the proportion of the working-age population in the labour market), which can be explained by companies’ reaction to demand-stimulating policies in a situation of low unemployment. The rise in the participation rate currently has considerable consequences for the US and euro-zone economies: Continued growth at a time when the unemployment rate is low, thanks to the upturn in potential growth due to the faster growth in the labour force; Persistently small increases in wage costs, since the increase in companies’ demand for labour is balanced by an increase in the labour supply. It should therefore be understood that if the rise in the participation rate stopped in the United States or the euro zone, growth would decline and inflation would rise. With a stable participation rate, potential growth would be only 1.8% per year in the United States and 0.5% per year in the euro zone.
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Natixis
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Patrick Artus
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