via their effects on the growth of the labor supply and TFP—could lift EMDE potential growth by 0.1 percentage point a year above the baseline, on average, in 2022-30.<sup>17</sup> In EMDEs with strong track records of, and ample room for, improving education and health outcomes, such as many of those in SSA, potential growth could be increased by more than twice as much. In contrast, the impact on potential growth for advanced economies would be negligible.

# IV.4 Raising labor supply growth

A country’s labor supply can be increased by raising the active share of the working-age population. This can be achieved through policies to “activate” discouraged workers or groups with historically low participation rates, such as women and younger or older workers.<sup>18</sup> In advanced economies and EMDEs, active labor market policies and reforms to social benefits have often been followed by higher labor force participation rates (Betcherman, Dar, and Olivas 2004; Card, Kluve, and Weber 2010). In contrast, less rigid employment protection regulation and lower minimum wages have had mixed effects on employment and labor force participation and, at times, unintended side effects such as lower labor force participation by disadvantaged groups (Betcherman 2014). In any event, the effects of such policies on output will depend on circumstances and country specifics. For example, De Haan and Wiese (2022) find that labor market reforms in 25 OECD countries in 1985-2013 were associated with higher output growth only when they were introduced during the periods of expansionary fiscal policy.

Data suggest that there is significant scope for increasing labor force participation particularly by women and older workers. Globally, average female labor force participation in 2011-21, at 54 percent, was three-quarters of that of men, which stood at 72 percent, and the gap between male and female participation was even larger in EMDEs, at 25 percentage points. Similarly, in both EMDEs and advanced economies, the average participation rate of workers aged 55 years or older was about half that of 30-45-year-old workers, and labor force participation among those aged 19-29 years was only four-fifths that of their 30-45 year olds.

Raising female labor force participation is a formidable task for policy makers because it depends on many factors, including economic structure and its transformation over time

> 17 This modest effect is in line with the meta regression analysis of 57 studies of the link between education and growth by Benos and Zotou (2014). They find an economically small, although statistically significant, link between standardized enrolment rates on growth. The small average effect disguises a wide range of impact estimates that also reflect different quality of schooling (Glewwe, Maiga, Zheng 2014). The empirical literature on the link between life expectancy is even more mixed, with results varying widely depending country circumstances and with the direction of causality debated (Acemoglu and Johnson 2007; He and Li 2018; Desbordes 2011).

> 18 The impact of such labor market reforms might depend on circumstances and country specifics. For example, De Haan and Wiese (2022) finds that labor market reforms in 25 OECD countries in 1985-2013 were associated with higher growth only when they were introduced during periods of expansionary fiscal policy.