Labor Force Participation and Hours Worked Recovery: U.S. vs. Europe

The United States, in the wake of the COVID-19 pandemic, had experienced a significant drop in its labor force participation rate. While some Americans used the pandemic as an opportunity to find better places of employment, many Americans chose to exit the labor force completely. This exodus of workers has been referred to as the “Great Resignation.”

Many women left their jobs to be caregivers, and the pandemic induced millions of workers to retire early through a combination of COVID-19 vulnerability and rising asset values. In this blog post, we will focus specifically on the workers who left the labor force as well as the hours worked by those who remained in the labor force, and contrast the U.S. recovery from the COVID-19 recession with that of the 10 largest countries in the European Union (EU) for which data are available.

Labor Force Participation and Hours Worked Data

The data we used to measure the impact and recovery from the COVID-19 recession include labor force participation rates and hours worked per person for the working-age population, defined as ages 15 to 64. Labor force participation rates were compiled by ILOSTAT, a statistical agency collecting data and statistics on United Nations key indicators.

To calculate hours worked per person, we used the number of weekly usual hours worked and multiplied those by the employment-population ratio. Data for the European countries were pulled from Eurostat, a statistical agency collecting data and statistics on EU key indicators.See Eurostat Database. For U.S. data, we used the Current Population Survey (CPS). The CPS interviews selected individuals for four consecutive months, pauses for eight months, then again interviews those individuals for another four months. We examined individuals who were employed and recorded their hours worked. We then aggregated the monthly data into quarters for the U.S.

Recovery of Labor Force Participation Rates

The labor force participation rate is defined as the percentage of the working-age population that is either working or actively looking for work. Therefore, both employed and unemployed people are included when calculating the size of the labor force. When individuals exit the labor force, they are no longer actively seeking employment. Those who leave the labor force typically do so because of retirement, schooling, disability, caring for family, illness, or being unable to find work.

The four figures below show the percentage point change of the labor force participation rate in the second quarter of 2020, the second quarter of 2021, the second quarter of 2022 and the second quarter of 2023 relative to the second quarter of 2019 for the U.S. and the 10 largest EU countries for which data are available. We used the second quarter of 2019 as the period of reference because it was roughly a year prior to the shutdowns induced by the COVID-19 pandemic.

There are two major takeaways from these figures. The first is that in the second quarter of 2020, the U.S. and all but one of the 10 European countries (Germany did not have data) saw a decrease in their labor force participation rates relative to the year prior. The U.S. does not particularly stand out among the nations we examined, indicating that people left the labor force as a consequence of the pandemic in Europe and the U.S. at comparable rates.

The second major takeaway is that as the pandemic advanced, people across the U.S. and the European countries we looked at were returning to the labor force. As of the second quarter of 2021, the labor force participation rates of some EU countries had returned to their pre-pandemic levels, while others had not. Regardless of that relatively quick recovery for some countries in Europe, by the second quarter of 2023, labor force participation rates were higher than those in the second quarter of 2019 in all countries we examined, except Romania.

Labor Force Participation Rates, Percentage Point Change from 2019:Q2 to 2020:Q2

Labor Force Participation Rates, Percentage Point Change from 2019:Q2 to 2021:Q2

Labor Force Participation Rates, Percentage Point Change from 2019:Q2 to 2022:Q2

Labor Force Participation Rates, Percentage Point Change from 2019:Q2 to 2023:Q2

SOURCES FOR ALL FOUR FIGURES: ILOSTAT and authors’ calculations.

NOTES: The charts show data for the U.S. and the 10 largest countries in the European Union for which data are available: Belgium, Czechia, Germany, Spain, France, Italy, Netherlands, Poland, Portugal and Romania. ILOSTAT does not provide data for Germany for 2020.

Recovery of Hours Worked

The next four bar charts plot the percent change in hours worked per person in the second quarters of 2020, 2021, 2022 and 2023 relative to the second quarter of 2019 for the same set of countries; hours worked per person is equal to hours worked per worker multiplied by the employment-to-population ratio.

As expected, hours worked had the most drastic change in the second quarter of 2020, right in the brunt of the pandemic, and it was particularly stark in the U.S. The recurring trend among these plots is that the drop in hours worked per person within the U.S. was among the largest of the countries examined, and hours worked per person in the U.S. still had not come back to pre-pandemic levels as of the second quarter of 2023.The forthcoming St. Louis Fed Review article “Where Are the Workers? From Great Resignation to Quiet Quitting” talks about the United States further, explaining how reductions in workers’ hours can explain why the labor market is even tighter than what is expected at the current levels of unemployment and labor force participation.

Hours Worked per Person, Percent Change from 2019:Q2 to 2020:Q2

Hours Worked per Person, Percent Change from 2019:Q2 to 2021:Q2

Hours Worked per Person, Percent Change from 2019:Q2 to 2022:Q2

Hours Worked per Person, Percent Change from 2019:Q2 to 2023:Q2

SOURCES FOR ALL FOUR FIGURES: Eurostat for the European data, the Current Population Survey for U.S. data and authors’ calculations.

NOTES: The charts show data for the U.S. and the 10 largest countries in the European Union for which data are available: Belgium, Czechia, Germany, Spain, France, Italy, Netherlands, Poland, Portugal and Romania. Eurostat does not provide data for Germany for 2020.

Conclusion

By the second quarter of 2023, the recovery of the labor force participation rate for the population ages 15 to 64 in the U.S. was in sync with the largest economies in the European Union for which data are available. However, hours worked per person for the U.S. age group still fell short of its pre-pandemic level, whereas in most European countries in this analysis, hours worked per person exceeded their pre-pandemic levels.

Were these differences in labor performance reflected in the broader economy? Relative to the second quarter of 2019, the U.S. increased its real gross domestic product (GDP) per capita by 6% by the second quarter of 2023. Apart from Poland and Romania in Eastern Europe, the U.S. saw the largest per capita GDP growth when compared to our sample of 10 EU member countries. Yet American workers are laboring less than most of their Western European peers relative to the pre-pandemic level. The fact that aggregate labor input for the working-age population in the U.S. has not fully recovered in contrast to the seven Western European countries in our sample is particularly stunning considering the U.S.-Europe differences in GDP per capita growth.

Notes

1. See Eurostat Database.
2. The forthcoming St. Louis Fed Review article “Where Are the Workers? From Great Resignation to Quiet Quitting” talks about the United States further, explaining how reductions in workers’ hours can explain why the labor market is even tighter than what is expected at the current levels of unemployment and labor force participation.