European Central Bank research finds ageing and higher educational attainment helped lower euro area unemployment

The European Central Bank published Economic Bulletin research analysing how demographic shifts in the euro area labour force have influenced the unemployment rate, concluding that changes in labour supply composition have supported the decline in unemployment even as the labour force expanded. The unemployment rate fell by 0.9 percentage points from the fourth quarter of 2021 to 6.3% in October 2024, while the labour force grew by 3.5% between the fourth quarter of 2021 and the third quarter of 2024. Growth in the labour force was driven largely by non-EU labour, older workers and tertiary-educated workers, whose labour force participation rose by 24.7%, 9.9% and 7.9% respectively. Over the same period, the number of unemployed declined by around 1.0 million (8.7%), although unemployment rates remained uneven across groups, including 4.4% for older workers and 12.7% for foreign workers in the third quarter of 2024. The ECB’s decomposition suggests that a rising share of tertiary-educated workers and older workers reduced aggregate unemployment, with counterfactuals implying the third-quarter 2024 unemployment rate would have been 0.2 percentage points higher absent the education shift and 0.3 percentage points higher if older workers’ participation and unemployment rates had remained at end-2021 levels. Increased participation by foreign workers had no significant impact on the aggregate rate because much of it translated into higher employment, despite their higher unemployment rates relative to national workers.