In this paper published by IZA Institute of Labor Economics, Daniel Gros examines whether structural reforms or educational expansion drive higher employment and participation rates.
Employment and labor force participation (LFP) rates have increased throughout Europe since the 1990s, with little interruption from the Great Recession. While many credit labour market reforms for this progress, ongoing educational expansion might actually be more important. This implies that the overall employment rate of an economy can change if the share of the population with tertiary education increases, even in the absence of any labour market reforms or effects of the business cycle. Taking this compositional effect into account makes it possible to disentangle the impact of reforms.
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