Working Paper No. 228
By Mark Schweitzer and David Tinsley
In this paper the extent to which recent patterns in UK labour force participation have been influenced by trend and business cycle factors is investigated. A modelling strategy is proposed that pools the available micro and aggregate-level data, to produce a mutually consistent model of the trend and cyclical components of participation. A significant procyclical pattern is established, but some distinct trend influences on the participation rate are also identified. The approach allows for the construction of forecasts, which would be a useful input into the sort of macroeconometric models used by policymakers. The model outperforms some conventional macroeconometric forecasts in out-of-sample forecast tests.