Determinants of Civilian Participation Rate in G7 Countries from (1980-2018)

Abstract

This paper examines the factors that contribute to the civilian participation rates of the labor force in the Group of Seven (G7) countries between 1980 and 2018. The analysis utilizing the time series data examines the effect of four macroeconomic variables, such as average weekly earnings, real GDP, unemployment rate, and inflation, on labor participation across the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom. Both country-specific and comparative relations were evaluated using Ordinary Least Squares (OLS) regression models. The results indicate that the real GDP and unemployment rates significantly and negatively affect the rates of participation, meaning that slowdowns in the economy and lack of jobs deter the involvement of the labor market. On the other hand, there is a positive and significant relationship with inflation and it can be argued that moderate price increment can lead to an increased labor participation. The average weekly wages were also found to impact in a negligible or declining manner in most economies. It is statistically stable, unbiased and consistent as the models are confirmed with the help of diagnostic tests. The paper finds that macroeconomic stability, especially in labour force participation and output, is crucial to the high participation of labour force in the developed economies.