How does labour force participation respond to unemployment? A regional and gender-based exploration of Italy

Abstract This study examines whether, and how, unemployment dynamics shape labour force participation across Italian macro-regions, asking whether added or discouraged worker effects prevail and whether participation responds persistently to unemployment shocks. Using quarterly data for the period 1977–2024, we investigate the dynamic interaction between unemployment and participation by accounting for territorial and gender heterogeneity. We employ a structural vector autoregressive (SVAR) framework to trace the dynamic effects of unemployment shocks on labour force participation while addressing their simultaneity. The results show that unemployment shocks generate a significant and persistent increase in participation at the aggregate level, at odds with long-run independence over the horizons considered. However, this effect is highly heterogeneous across space and gender. Unemployment invariance holds in the North–West area, while added worker effects emerge mainly in Central and southern Italy, driven almost entirely by female participation. Male participation exhibits only transitory discouraged worker effects (especially in the North–East). Overall, the findings highlight the importance of regional labour market structures in shaping long-run adjustment mechanisms, particularly the gendered nature of participation responses to unemployment shocks. The results may have important implications for the design of place-based and gender-sensitive labour market policies.