The labour force depends on two factors: the working age population and the percentage of this that is active (the participation rate). Recent dynamics in both variables by demographic group (nationality, age and gender) help us to understand the reduction in the labour force and to project its trend over the medium term.
A breakdown of the reduction in the labour force between 2011 and 2015 by nationality (see the first graph) reveals the sharp fall in foreign workers while Spanish workers saw a slight decline and those with dual nationality an increase. However, this slight reduction in the Spanish labour force hides a highly disparate trend depending on gender and age (see the second graph). The smaller share of younger generations caused the drop in the labour force in the age range between 25 and 341 while the participation rate of the group aged between 16 and 24 fell significantly, which would be positive if, subsequently, this led to a more highly trained labour force. This withdrawal among the younger labour force was offset by a rise in older members, increasing because the population volume for this age range also increased, as well as the participation rate of women aged over 35 and men aged over 55.
Based on population projections by the INE and three different hypotheses on the participation rate, we can estimate three scenarios for the trend in the labour force over the next five years (see the third graph).2 The first assumes that participation rates remain stable at the levels of 2015. As a result of the ageing population, the labour force would shrink by more than 800,000 people up to 2020. The second scenario assumes a slight increase in the participation rate of middle aged women and especially a rise in the participation rate of individuals over 55, bringing it close to the pattern observed in other euro area countries. This scenario, which we believe to be the most plausible, would lead to an increase in the labour force 400,000 people. The third scenario assumes larger increases in the participation rate and, consequently, the labour force. From this exercise we can see that, in spite of the share of the young population decreasing, the increases expected in the participation rate of the older groups, especially among women, will ensure that the labour force will continue to grow in the medium term.
1. Emigration barely contributed to this reduction.
2. In the three scenarios, the change in the population aged over 16 between 2015 and 2020, of 100,000 people in total, is based on INE projections. The hypotheses for the participation rate have been produced using a total of 30 groups in the analysis: comparing five age ranges (16-24, 25-34, 35-44, 45-54 and 55+), three nationalities (Spanish, dual and foreign) and two genders (male and female).