The pandemic has driven labor force participation rates (LFPR) down among the working age population around the world, including G7 and G20 countries. However, even before the pandemic, LFPR among working age population was declining in multiple G20 economies, including the most populous economies in the world: China, India, and the United States. Each economy declined 6.7, 7.5, and 3.3 percentage points respectively between 2000 and 2019. (Figure 1). Compared to 2000, a smaller share of working-age population was already willing to work in these economies in 2019.
While the LFRP declined among both working-age men and women in China, India, and the United States, six other G20 economies have experienced declining LFPR only among their working-age men from 2000 to 2019: South Africa, Mexico, Argentina, Brazil, Indonesia, and the United Kingdom (Figures 2a and 2b).
Depending on the country, several factors could be contributing to these trends — especially among the working-age male population. These include a changing attitude towards work, opting out for early retirement because of increasing wealth, a growing informal economy in emerging markets and developing economies, the rising ratio of female to male LFPR (Figure 3) – except for India, China, and Russia – which has made it financially possible for more men to drop out of labor force. As well, an increasing dependency on social programs because of disability laws and chronic medical conditions, the increasing cost of child care, and an increasing number of discouraged workers due to declining job security and tenure are driving LFPRs down. Many of these factors were exacerbated by the pandemic, pushing the LFPR even lower across all G20 economies — but the pandemic is not the root cause
In addition to generally declining LFPRs, female LFPR rose relative to that of men in most G20 economies before the pandemic (figure 3). However, in all G20 economies, LFPR for working-age women remained lower than men’s LFPR (Figure 4). This difference is especially stark in Saudi Arabia (57 percentage points difference), India (57 percentage points difference), Turkey (39 percentage points difference), Mexico (33 percentage points difference), Indonesia (28 percentage points difference) and Argentina (20 percentage points difference). Among the G7 countries of G20, Italy has the largest gap between working-age male and female LFPR, followed by Japan: 18 and 14 percentage points differences, respectively. The preliminary 2020 data coming from many of the G20 economies suggests that the pandemic has increased the gender gap in LFPR in many of the G20 economies, as large number of mothers were forced to leave the labor force to care for their children at home when schools and child-care facilities shut down.
Labor force participation rate for the working-age population is an important indicator measuring the health of the labor market in an economy. Many of the G20 economies have struggled to maintain LFPRs even before the pandemic, a challenge exacerbated by the pandemic. Though the 2021 G20 meetings are over, labor market challenges continue to threaten the well-being of these economies, especially given recent shortage of labor supply and rapid wage increases. Will labor market challenges be part of the next G20 meetings’ agenda? They should be, for the benefit of their economies and citizens.
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Let’s talk about informality!
By Amin Mohseni-Cheraghlou
The US economy added 266,000 jobs in April, well below experts’ forecasts of one million jobs. April numbers suggest that there were about 1.1 people unemployed for every job opening in the economy, pointing to a shortage story in labor supply.
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The labor market in the United States has substantially improved since the early days of the COVID-19 pandemic, but significant slack remains. Investing more resources into active labor market policies will provide micro and macro benefits in the short-run as the economy continues to recover, as well as in the long-run as the U.S. labor market grapples with structural challenges.
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