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STU 03-00 : Special Topic - Trends in Belgian labour supply [Short Term Update 03-00]

The Belgian economy has entered a period of strong cyclical growth since activity accelerated strongly in the second half of last year. Benefiting from an important positive carry-over effect, the increase in GDP should be 3.8% this year. Next year economic growth should be 3.1%.

Despite two consecutive years of strong growth, pressure on the goods and labour market should remain limited. The sustained growth in business investment and a rise in the labour supply could raise potential growth in Belgium. In the special topic of this issue, it is shown that this increase in the labour supply should result from higher participation rates.

Moreover, the acceleration in the general consumer price index seen in recent months and the rise in our inflation forecast for the year 2000 are only marginally influenced by domestic cost components in general, and by wage costs in particular, but can principally be explained by the increase in import prices, especially oil prices, whose effect was strengthened by the fall in the effective euro exchange rate.

As in 2000, economic growth in 2001 will be broadly based. It will be stimulated by a positive contribution from foreign trade and a still vigorous domestic demand, despite a slowdown following the very dynamic expansion of domestic demand this year. Growth of private employment will hardly weaken in 2001. The improvement in employment during the 2000-2001 period will lead to a further increase in the employment rate. From 1995 to 2001, the employment rate should gain 3.4 percentage points in all.

The past decades have seen special attention to the question of how to foster job creation and increase the labour intensity of growth, so as to absorb the high level of unemployment. We are now witnessing a shift in focus: increasingly, there is concern about how to mobilise the non-occupied potential labour force, so as to accommodate expected job growth. This special topic analyses the past long-term evolution of the potential and actual labour supply, and presents the expected outlook for the years to come, based on the latest FPB medium-term economic outlook.

Graph 1 depicts the observed evolution of the labour force (official FMTA/MfET concept: head count of register- based employment plus register-based job seekers) for the post-war period and its expected evolution for the next five years. The evolution of the total population of working age (15-64 years) on the one hand and the evolution of the official participation rate 2 on the other hand provide for a first rough-and-ready decomposition of the underlying demographic and socio-economic explanatory factors.

The rate of participation has been characterised by a number of temporary ups and downs, but has, on the whole, remained remarkably stable at around 62% up to the end of the 1980s. During this period the increase in the labour force may be attributed largely to the growth of the population of working age. Since the end of the 1980s, however, the participation rate has increased persistently, and has since then been the driving force behind the further growth of the labour force. The official participation rate increased from 62.1% in 1989 to 65% in 1998 (the last observation), and is expected to increase further to nearly 66% by 2005.

Improved explanation (and forecasting) of participation behaviour in the labour market would ideally require analysis based on a broad concept of “potential labour force”, which includes people that are out of the labour force in International Labour Organisation (ILO)-terms, but are sufficiently close to the labour market to qualify for possible entry or re-entry. We have tentatively constructed a broader measure by adding to the official labour force, benefit-receivers belonging to two different schemes that organise early withdrawal from the labour force: people in pre-retirement and unemployed benefit receivers above 50 that are exempt from active job search. Although for those now present in these early withdrawal schemes, re-entry into the labour force seems rather unlikely, in dynamic terms their inclusion makes much more sense. These people have moved into inactivity out of actual employment; in the future, entry- rates into these schemes for generations arriving at early-withdrawal ages may significantly fall, because labour market conditions have improved and/or because policy measures to discourage early withdrawal have been taken. [More in the full text document (PDF 3.0 file)]

STU 3-00 was finalised on July 5th 2000.

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