The European Union’s labour force is far more resilient to economic downturns than its US counterpart, although the headline stability masks much greater pain among young, less-educated and non-native workers, according to a working paper from the European Central Bank (ECB).

The study examines how people respond when economic growth weakens, using labour market data covering 15 EU countries and 114 regions between 2000 and 2020.

The researchers found that the overall EU labour force participation rate, which measures the share of working-age people either employed or actively looking for work, barely changes after a growth shock.

This contrasts sharply with the United States, where labour force participation has been shown to fall for around four years after a negative economic shock and take roughly eight years to recover fully.

The apparent EU stability does not mean that downturns have little effect on workers.

Instead, the study found that employment falls and unemployment rises significantly, with the effects lasting around four to five years, while most people who lose their jobs remain officially in the labour force rather than giving up looking for work.

This distinction matters for policymakers because someone who stops searching for a job is no longer counted as unemployed.

A fall in labour force participation can therefore make the unemployment rate appear healthier than the underlying labour market actually is.

The researchers found that this so-called discouraged worker effect is comparatively weak in the EU, helping explain why the region’s overall participation rate remains stable.

The paper attributes part of this resilience to stronger employment protection, more generous unemployment insurance and widespread use of short-time work schemes, which can help keep people attached to the labour market after losing a job.

The more limited role of migration between regions and countries as an adjustment mechanism in Europe may also contribute to this effect.

However, the aggregate figures conceal significant differences between groups.

Men’s participation falls significantly after a negative growth shock, while women’s remains broadly stable, according to the study.

The researchers link this partly to the concentration of men in more economically sensitive sectors such as construction and manufacturing.

They also identify an “added worker effect”, whereby women are more likely to enter the labour force when their partner’s income falls, helping households compensate for lost earnings.

Young people are particularly vulnerable.

Workers aged 15 to 24 experience the most persistent decline in labour force participation, with the effects lasting up to eight years.

The researchers said this suggested that recessions could cause lasting damage to young people’s attachment to the labour market.

Such effects can arise when a person struggles to find work early in their career and loses opportunities to build skills and experience, potentially weakening their employment prospects for years afterwards.

Less-educated workers also suffer disproportionately during downturns, while non-native workers face particularly high employment costs, partly because some respond to weaker labour markets by leaving the country.

The researchers describe these contrasting outcomes as hidden beneath the aggregate figures because the declines among some groups are offset by stability among others.

The overall participation rate therefore appears remarkably steady even though significant vulnerabilities exist within individual sections of the population.

The study is the first to provide a causal estimate of how labour force participation responds to regional economic growth shocks across the EU, according to its authors.

To distinguish genuine economic shocks from other local developments, the researchers used differences in the industrial structure of European regions to identify changes in growth that were less likely to be driven by local labour market conditions themselves.

For monetary policy, the findings suggest that the unemployment rate is a relatively reliable measure of spare capacity in the EU economy, compared with the United States.

However, the researchers caution that it still does not capture all available workers, because some people may want a job but temporarily stop searching.

The findings also have implications for government policy.

The long-lasting effects on young people strengthen the case for early intervention through training, employment subsidies and apprenticeships, which could prevent temporary job losses from becoming longer-term exits from employment.

The different responses of men and women also point to the importance of childcare provision and flexible working arrangements, particularly when households experience income shocks.

More broadly, the paper argues that the EU labour market’s resilience comes from offsetting vulnerabilities rather than uniform strength.

The researchers found that downturns are absorbed largely through changes in employment and unemployment, with the pool of people participating in the labour market remaining comparatively intact.

They said early retirement did not show a significant cyclical response, while the rise in the so-called shadow labour force, referring to people who want work but are not actively searching, was modest and short-lived.

The study also found differences between EU countries, suggesting that national labour market institutions influence how strongly participation responds to economic shocks.

The researchers caution that their analysis has limitations because the underlying survey structure does not allow them to track individual workers’ movements into and out of employment.

They also say that regional characteristics built into the analysis may absorb some longer-term effects of economic shocks, although their robustness tests suggest this does not explain the persistent findings.

Future research could examine more closely how specific labour market institutions affect participation, whether the same resilience was maintained during shocks after 2020, and how the growing participation of older workers interacts with economic cycles.

The authors also want to investigate further how these uneven labour market effects should shape the design of social protection.

The study concluded that EU labour force participation is substantially less cyclical than in the United States, but that policymakers should look beyond the headline rate because young people, less-educated workers and non-native workers can bear much heavier costs during downturns.