The labour force participation rate in the euro area has risen in recent years while it has declined in the US, significantly narrowing the gap between the two. This column analyses how demographic shifts are influencing the rate in both economies and finds that demographic changes are pushing participation lower, while education is an offsetting factor. The key distinction lies in within-group changes: in the euro area, these changes have significantly boosted participation, whereas in the US, they have had a small negative effect.
Developments in labour supply play a critical role in shaping labour shortages – critical for inflationary pressures – and are a key driver of potential output. As discussed by Van Heck et al. (2026), the joint effect of softer labour demand and stronger supply resulted in a steep decline in labour shortages in the EU since 2023, reducing wage pressures. Developments in labour supply are heavily influenced by the demographic composition of the population and by the incentives that encourage participation in the labour market. Martínez-Turégano and Fernández (2018) concluded that European policy efforts should concentrate on providing an adequate framework for increasing participation rates among those niches of workers where higher rates can be achieved.
In 2025, the labour force participation rate (LFPR) for individuals aged over 15 in the euro area averaged 58.2%, which was 4.2 percentage points lower than the corresponding rate in the US. This disparity, slightly more pronounced among men than women, has been narrowing in recent years. Since 2006, the LFPR in the euro area has risen by 1.6 percentage points, while it has declined by around 4 percentage points in the US. As a result, the gap between the two regions has shrunk significantly.
We analyse how demographic shifts are influencing the LFPR in the euro area and the US, following previous published work (Consolo et al. 2026). The study leverages microdata and adopts a methodology similar to that used by Hornstein et al. (2018), enabling the creation of 44 distinct demographic groups defined by two genders, seven age brackets, and four educational attainment levels for individuals aged 25 and older. The analysis employs a shift-share approach and estimates trends within each demographic group.
To measure the extent to which demographic changes have influenced the aggregate LFPR since 2006, we construct two counterfactual scenarios. In the first scenario, the participation rates for each age-gender group are held constant at their 2006 levels, while the actual population shares are used as weights through to 2024 (yellow lines in Figure 1). In the second scenario, the educational distribution is incorporated, allowing the educational attainment levels within each age-gender group to evolve based on observed data (red lines).
The findings reveal that changes in the age and gender composition of the population have exerted downward pressure on LFPRs in both economic areas. This trend is primarily driven by population ageing, which is shifting a growing share of the population into older age groups that typically have lower participation rates (yellow bars in Figure 1). However, this negative impact is partially offset by rising educational attainment, which has a positive effect on participation rates – this effect is slightly more pronounced in the euro area than in the US (red bars). The key distinction lies in within-group changes: in the euro area, these changes have significantly boosted participation, whereas in the US, they have had a small negative effect (grey bars).
Figure 1 Euro area and US participation rates and drivers
The role of migration has also been analysed, but its impact is relatively small compared to the contributions of age, gender, and education. Still, in the euro area, the LFPR of non-EU citizens has increased in recent years, exceeding that of euro area nationals and therefore supporting overall participation. In the US, while prime-age male participation is higher among migrants than among nationals, this is offset by lower participation rates among migrant women. As a result, the overall effect of migration on participation rates in the US has been marginal in recent years. However, despite its limited impact on participation rates, migration has played a significant role in labour market dynamics in recent years (Arce et al., 2025). The increase in population due to migration flows has positively contributed to the overall labour force in both the euro area and the US (Figure 2).
Figure 2 Labour force growth and key drivers among migrants in the euro area and the US
To explore deeper into within-group changes, we analyse how LFPRs have evolved across specific age and gender groups (Figure 3). For female participation, both the euro area and the US show a broad-based increase across age groups. The rise is particularly pronounced in the euro area for women aged 55-64. In contrast, the increase in the US is more modest and concentrated among women at the lower end of the prime working-age group (25-54). For male participation, similar trends emerge, such as rising LFPRs among older agelonlloj groups (above 54 years). Yet, the increase is notably more substantial in the euro area, especially among men aged 60-65, extending to older age groups. Among younger male age groups, participation rates have declined since 2006, particularly of men under 25 in the US.
Figure 3 Participation rates by age and gender
The shifts in participation rates within demographic groups can be attributed to a variety of factors. In the euro area, a growing number of older workers are staying in the labour force, driven by later retirement, pension reforms, and increased longevity (Bodnár and Nerlich 2020, Eiffe et al. 2024). In the US, male prime-age participation rates have been declining across all age groups, with the steepest drops occurring among men under 35. This is largely due to extended investment in formal education (Bengali et al. 2023).
Despite the sharp decline in participation rates during the pandemic, they have rebounded and, by 2024, exceeded the estimated trend – most notably in the euro area. The trend in aggregate LFPRs is calculated by aggregating the trends in participation rates across age-gender-education groups, using the actual population weights (Figure 4)
Figure 4 Estimated labour force participation trends and forecasts (percent)
In 2024, the LFPRs (grey lines) were above the estimated trend for both the euro area and the US. This suggests relatively tight labour markets in both regions, consistent with other indicators such as the vacancy-to-unemployment ratio, which remained at historically high levels. Furthermore, despite the temporary decline in participation during the COVID-19 pandemic, the estimated post-COVID trend now exceeds the pre-COVID trend, especially in the euro area.
Looking ahead, projections indicate that the trend in the aggregate labour force participation rate will decline by around 2.5 percentage points in the euro area, reaching 57% by 2035, and by around 1 percentage points in the US, falling to 61.5%. These projections primarily reflect shifts in demographic composition, based on the assumption that participation rates will remain unchanged. Nevertheless, there is potential for mitigating these effects through an increase in the proportion of individuals with higher education and through further positive within-group participation changes. Economic policies will be critical in fostering these offsetting factors and shaping future labour force participation, such as rising retirement age, as presented in the European Commission’s 2024 Ageing Report.
Source : VOXeu
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