Drivers of labour force participation in Belgium

Belgium is a developed economy where economic growth is primarily based on a relatively small number of highly productive people. However, productivity gains are stagnating while the dependency ratio continues to rise.

Raising the activity rate among the working-age population would enable the economy to enhance its growth potential, ease pressure on public finances and thus improve the sustainability of the social security system. And lastly, wider labour market participation is also consistent with the notion of fairness as it ensures better social integration and helps tackle poverty by giving everybody an opportunity to contribute to general well-being, each according to their abilities.

The activity rate in Belgium is below the average for the three neighbouring countries in almost every age group of the population aged between 15 and 64 years. The biggest discrepancies are in the 15-24 age group and the 55-64 age group. Flanders is the only Region where the activity rate of the population aged between 25 and 54 years bears comparison with that in the three neighbouring countries. The activity rate among young people in Belgium compared to the reference countries is lower because it is less common to combine study with work. For the 55-64 age group the situation has improved over the past 20 years, thanks to regulatory changes with regard to the retirement schemes, which take into account the fact that, on average, people join the labour market later, whereas life expectancy has continuously risen. Nonetheless, the average effective age of retirement in Belgium in 2018 was still lower than in Germany, France and the Netherlands.

For the 25-54 age group, the determinants of the decision to join the labour market were examined separately for men and women. In both groups, the level of education is the principal factor. The probability of being active declines by more than 15 percentage points for persons with no more than a lower secondary education diploma, compared to the medium-educated. The gap between persons with a higher education diploma and the medium- educated is 4 points for men and more than twice that for women (9 points).

In the vast majority of cases, parenting duties are still borne by women. For these women, having children below 6 years reduces their probability of participating in the labour market dramatically. This effect tails off as the age of the children increases, but it stays significantly negative for all ages. For men, on the other hand, the effects relating to family responsibilities are very small and are not statistically significant, even for those with very young children.

Finally, being born in a country outside the EU28 is a factor that lowers the activity rate. The negative effect is 5 percentage points for men and more than 15 points for women. Low-educated women, of non-EU foreign origin with dependants in the family consequently run a much higher risk of non-participation in the labour market.

This article also discusses an estimation of the available labour reserve. This concept encompasses not only the unemployed but also inactives with a profile similar to that of job-seekers. It also includes persons working part-time who would like to do more work. This indicator is particularly relevant when the unemployment rate is low, as it offers a fuller picture of the labour force that could be mobilised.

In the 25-54 age group, there are 46 000 inactive persons actively looking for work, and 69 000 inactive persons who are available but not looking for work. The latter generally have a more tenuous link with the labour market, notably because they are older, have had short schooling, are ill or have a disability. Finally, 3.6% of part-time workers (primarily women) state that they would like to work another 13 hours a week. If they were able to work these extra hours, this would represent the equivalent of 45 000 additional jobs with average working hours for the country as a whole.

The observed gap in unemployment rates between the Regions does not diminish when the concept is extended to the labour reserve: like the unemployed, the inactive persons who could be mobilised and the part-time workers wishing to work more are relatively more numerous in Brussels and Wallonia than in Flanders. It therefore seems important for the Regions that Flanders should be able to tap the reserves in the other Regions, even if the barriers (language skills, transport costs) should not be under-estimated.

The article shows that the participation decision also depends on the local employment opportunities. For both men and women, the probability of being active declines if the Region has a high unemployment rate. Measures aimed at avoiding an increase in unemployment following a temporary shock, even a severe shock as the present one, can thus prevent a drop in the activity rate and therefore limit the long-term consequences of the crisis.